Although there are certainly a few downsides to some of the college savings plans currently available, financial experts still maintain that they are a good option to explore if you children who will likely be off to college. This is particularly true when it comes to “guaranteed” college savings plans, which allow you to prepay for your child’s education.

Like all types of 529 savings plan, “guaranteed” plans receive special tax breaks that help you stretch your dollars even further. In fact, as long as the money is ultimately used for school supplies or to pay for tuition, it can build up in your account tax free. In addition to receiving federal tax breaks, most states extend tax breaks to 529 account holders as well. According to a federal study, these tax benefits can effectively increase your savings by 6 to 39%, depending upon the tax bracket you fall within as well as the length of your investment.

Although there is no doubt that investing in a 529 program is a good idea when it comes to saving for college, there are still several questions you need to answer in order to make certain you are making the right decision for you and your education.

Understanding the Various Types of 529 Programs

The first thing you need to realize is that not all 529 programs are the same. Essentially, there are two different types of 529s available. Most 529s allow you to choose from a few different state-approved mutual funds for you to invest your 529 in, but the state of Wyoming does not offer this option. In addition, most states offer age-based programs that are designed to get the best payout by the time the person being saved for reaches college age.

Unfortunately, the market collapse has caused trouble with most standard 529 programs, as they have not been able to keep up with the rate of tuition inflation. As a result, many people have chosen to participate in plans that allow them to purchase tuition credits so they don’t have to worry about price increase.

Deciding if Guaranteed Plans are Right for You

Although there are certainly benefits to investing in prepaid college savings plans – namely the fact that you can defend yourself against inflation – there are potential downsides to this type of program as well. For example, 10 of the currently available 14 prepaid plans are limited to only those who reside in the sponsoring state. These include:

· Florida
· Illinois
· Michigan
· Mississippi
· Nevada
· Pennsylvania
· Tennessee
· Texas
· Virginia
· Washington

Maryland’s plan is similar, in that only state residents and residents of the District of Columbia can take advantage of the plan. On the flip side, those who invest in these plans can cash out their investments at a later date and use the funds at out of state schools as well as others that are not participating in the program. While some of these plans do guarantee a refund that is equivalent to that of in-state tuition, others do not and may actually result in a much smaller return.

If you don’t live in one of the aforementioned states, but you still want to participate in one of these programs, there are three plans that allow people from anywhere to make investments. These are:

· Alaska
· Massachusetts
· Independent 529 Plan

With the Independent 529 plan, you can prepay tuition at more than 270 different private colleges. If the student doesn’t enroll in a school that is participating in the plan, however, the refund can not be any more than the amount of the original contribution plus a 2% per year profit.