Saving for a college education at a private school is getting a bit more simple. The college savings plan formerly known as the Independent 529 is now called the Private College 529 Plan.The Private College 529 is similar to a standard, state-run 529 plan, except that it is only applicable to tuition at private universities.
What’s a Private College 529 Plan?
A 529 plan — named after section 529 of the International Revenue Code — is an account that parents typically open when their child is young in anticipation of entry to a private college.
In a prepaid 529, you purchase education credits ahead of time and when your child is ready for college they use the credits, usually saving money because of the constant and drastic appreciation of education costs. The performance of these prepaid 529s is based on the inflation of tuition costs between your purchase and the start of your child’s college career. In a savings 529, your investment’s return is based solely on the performance of the pieces of your portfolio. You are typically allowed to choose from a few different packages of investment vehicles, although savings 529s often consist of many mutual funds.
The private 529 can be a very valuable proposition — as long as you have a good idea of where your child is planning on attending college. The plans are not usable at public universities, so that narrows your options considerably. Even within the seemingly homogeneous ranks of private schools, your options may be limited. Princeton accepts 529 benefits while Harvard does not. Stanford accepts the plans but Georgetown does not. If your child doesn’t get into — or just doesn’t want to attend — any of the available schools, you would have been much better off just investing your money in standard bonds because 529 earnings can only be put toward education expenses. If you want a refund or a transition to another, more comprehensive 529 plan, the Private College 529 will only refund your principal, adjusted for the net investment performance (up to 2%). It bears mentioning that you could transfer your unused 529 funds to another child without penalty.
Why the Change?
The Tuition Plan Consortium, which administers the 529s, hopes to attract more parents to the accounts by changing the name. While “Independent” is not necessarily synonymous with a private university education, the consortium hopes the term “Private College” will describe its product more accurately.
The consortium isn’t having much success selling parents on the plans: After seven years, only 8,000 accounts have been opened. New account openings slowed to 700 in the past year, according to The New York Times. The plan is currently being transitioned from receiving funding from TIAA-CREF to funding from OFI Private Investments, Inc.