Kevin McCormally: I am Kevin McCormally of Kiplinger's and her name is Jane Clark, an Associate Editor of Kiplinger's Personal Finance magazine, to talk about saving for college. Jane every parent knows the college cost the fortune and we are always hearing about new and different ways to saving for college. We hear about 529 plans and Pre-paid tuition plans. Are those the same thing?
Jane Clark: No, actually 529 plans are States sponsored investment accounts in which you can accumulate savings and avoid paying taxes on the earnings, as long as you use the withdrawals for a qualified educational expenses, such as college tuition.
Kevin McCormally: Okay, and the Pre-paid tuition plan?
Jane Clark: Pre-paid tuition plans, let you buy tomorrow's tuition at today's prices, at participating institutions, most of them are State Institutions.
Kevin McCormally: Okay, so what happens if your child doesn't go to that college down the row, that you were paid the tuition for?
Jane Clark: You can transfer the money to other institutions out of states school or private institutions, although you may have to pay a penalty.
Kevin McCormally: It sounds like the 529 is more flexible approach to college savings.
Jane Clark: Right, because you don't have to have your kid go to a specific participating institution, you can use that money for any college in University.
Kevin McCormally: What if the child doesn't go to school at all? Can we get the money back?
Jane Clark: Yes, you can actually transfer the money to another beneficiary, say another kid in your family. But if nobody is going to use the money, then you can withdraw it and pay a 10% penalty and income tax on the earnings.
Kevin McCormally: So that is how to apply to booked a pre-paid tuition plan and the 529.
Jane McCormally: Yes, Correct.
Kevin McCormally: Okay, Jane. Thank you very much.
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