Friday, October 14, 2005

Indy 529 - A Twist On The 529 Savings Plan

As I was doing my research the other day, I came across an interesting twist on the 529 plan. It's called the Independent 529 Savings Plan or Indy 529 (if you want to be trendy like me)

This plan began in September 2003 and is a group of just over 250 private schools that will allow me to purchase tuition credits today and redeem them in 18 years when I go to college at any of the participating colleges. (here is the full list of colleges which happens to include the colleges mom, dad and my uncle went to)

For example if college yearly tuition currently costs $10,000, and I invest $10,000 into the program today, even if the cost of attending the college rises to $20,000 I have already paid for it in full. If I invest $2,000, I've paid for 20% of one year's tuition no matter what it becomes when I actually attend college.

So why would I pick the Indy 529 over a regular 529 plan?

Basically I would be using today's money to pay for college when I'm ready to go. Statistics say that college tuition has been increasing about 6% a year, so if that trend continues, I would be getting a 6% return on the money. Of course, college tuition could increase more or less - it's kind of a gamble on what I think college tuition will be doing and if you believe you can make more by investing the money in another area.

Another bonus is that these schools actually give you a discount. The discount varies from school to school, but a 1% discount per year is typical.

The big risk (aside from college tuition not increasing - something that I don't think is going to happen) is if I decide to go to a different college than those listed in the plan, or decide not to go to college at all. While the money could be transferred to another name, if I wanted the money back for other things, I would only get back the money I put in initially, plus an annualized 2 percent gain or loss depending on how the fund which holds the money has performed.

There are also some financial aid implications. While many are predicting that the Indy 529 plan will be treated like a regular 529 plan and counted as the parent's assets for financial aid in the future, currently it would be considered my asset which could affect the amount of financial aid I could qualify for.

I guess the Indy 529 plan makes sense if I know I want to go to a private school and don't think the stock market will perform at its historical average in the future. Since I haven't even reached the third of a year mark in age, these are questions that I haven't considered with much thought and probably won't do so for quite some time. Even though the Indy 529 is not something for me at the moment, it's a creative alternative that certainly could turn out to be a great college investment for certain individuals.

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