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What does 529 mean? Named after the
section of the federal tax code that authorizes them,
529s are state-sponsored college funding programs designed
to help families save for future college costs. All
states offer a prepaid tuition plan or a savings plan,
and some offer both. In Illinois, the 529 Prepaid
Tuition Program is called College Illinois!.
529 Prepaid Tuition Plans
Prepaid tuition plans like College Illinois!
allow you to lock in tuition and fees now, protecting
you against future tuition inflation. It's simple. They're
not investments or savings plans that depend on the
market for growth. Compared to stocks, bonds and other
investments, prepaid plans offer little to no risk.
You're secure even in an uncertain market.
Prepaid tuition plans are a contract between the purchaser
and the state. You can purchase anywhere from one to
nine semesters. This contract ensures tuition and fee
benefits when a student is ready to go to school. No
tuition inflation, even as tuition rises. In 2007, Illinois
tuition and fees at public universities rose by 8.6%.
With College Illinois!, your prepaid tuition
benefits can be used at most any college — in-state
or out-of-state, public or private. Once a student selects
a school, he or she receives benefits equaling 100 percent
coverage, or the mean-weighted average of tuition and
fees found at Illinois public institutions, depending
on the institution selected.
529 Savings Plans
Think investment. All 529 savings programs are investment
plans sponsored by a state. Your money is invested in
equity or bond market funds that are typically administered
by an outside investment firm.
If you're willing to take on a greater amount of risk
by investing in the market, savings plans can be beneficial.
However, many parents have seen their investment returns
diminish or in some cases result in losses as a result
of volatile market conditions. They are then left to
wonder how they will pay for the growing expense of
college.
Unlike most prepaid plans, savings programs are not
secured by the state. There is no assurance that your
investment will grow to cover college costs. If the
savings program experiences investment losses, your
invested money will be at risk.
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