Private College 529 and college savings plans: A perfect pair

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These days, almost all parents want their children to go to college, and many will start putting money away in a 529 savings plan well before high school graduation. But if you think one of these private colleges and universities might be in your future, putting some of your funds into a Private College 529 Plan account could help boost your savings and reach your goals even faster. Instead of choosing one type of plan over the other, why not consider a savings plan as a complement to Private College 529?

Private College 529 is a unique program that allows families to lock in future college costs at today’s rates. Account owners purchase tuition certificates that will cover a semester of tuition and fees at one of the 270+ participating schools. The certificates are guaranteed for 30 years, and if your child decides not to attend a member school you have the option of changing the beneficiary, rolling the funds into a state-sponsored 529 plan or requesting a refund. But keep in mind that your upside potential at 2% annually, so if you roll out of the plan, you're returns are more limited than if you were to actually have used the money at a participating institution.

And Private College 529 offers many of the same benefits as a traditional 529 plan, like tax-free withdrawals when the funds are used to pay for qualified expenses. Accounts owned by a dependent student or one of their parents receive favorable financial aid treatment, only having a slight impact on their Expected Family Contribution. Grandparents can use their accounts as an estate-planning tool, by contributing as much as $70,000 per year per individual without incurring gift taxes.

What’s more, Private College 529 offers families peace of mind. No matter how much tuition prices rise, or what happens in the financial markets, the tuition credits you purchased will retain their worth. This is quite different from a 529 savings plan, which moves up or down in value based on the performance of its underlying investments.

Here’s how combining these two vehicles can be an effective way to finance a college education.

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Cover more expenses

Private College 529 allows you to purchase credits for tuition and fees – period. That means you’ll have to come up with another way to pay for things like books, room and board and all of the numerous other expenses your child will be faced with. According to a study by the College Board, the estimated cost per student for room and board at private, four-year schools is $11,890. Books and supplies will run you another $1,230, and “other” expenses total $1,650.

A state-sponsored college savings plan, on the other hand, allows tax-free withdrawals on all qualified higher education expenses. This includes tuition, fees, some room and board, special needs equipment, computers and other technology.

One strategy could be to cover tuition costs with a Private College 529 account, and save in a tax-advantaged 529 savings plan for the other expenses.

Diversify your investments

When planning for retirement, you wouldn’t put all of your eggs in one basket – would you? Just like retirement, it’s important to deploy a diversified education portfolio. A Private College 529 account acts as a fixed asset, protecting principal from market downturns. And, while a more risky investment, a 529 savings plan heavily weighted toward stocks offers greater potential reward.

Combining the two types of accounts can offer you the best of both worlds.

Mitigate risk as your child gets closer to college

When you enroll in a 529 savings plan, you typically have to select the underlying investments for your account based on your risk tolerance and individual goals. If you select an age-based portfolio, your plan will automatically shift toward more conservative investments as your child gets closer to college. Some parents will choose a target risk or individual portfolio and will manually adjust allocations as their time to college draws near.

But instead of switching to a fixed income investment within the same, or another 529 savings plan, why not roll some or all of the funds into a Private College 529 account during these final years of saving? 529 account owners are allowed one tax-free rollover per beneficiary in a 12-month period, and two investment changes per calendar year.

Keep in mind, however, tuition certificates from a Private College 529 account must be held for at least 36 months before they can be redeemed. That means you’ll want to start thinking about moving funds over during your child’s sophomore year of high school.

Editor’s Note: Here at Savingforcollege.com, we pride ourselves on providing objective and independent information to help consumers save for college. While we don't usually single out a specific plan to write about, Private College 529 Plan is not well covered by existing information on our site because of its unique approach, prompting us to write a dedicated article to help readers better understand this plan and its benefits.

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