What are the differences between prepaid 529 plan and 529 saving plan? And which one do you recommend?

First of all Congratulations and Cheers on your decision to open a 529 account.

In short, the difference is

With Prepaid 529 plan, you put money in the plan and that is considered as being paid in today's dollars. So for example say you put 100 dollars in IL state plan today. The average state college tution is say 3000 dollars (hypothetical figures just for illustration). Now say when your 10 year old goes to school, the average fees rises to say 10,000. Then your100 dollars will be considered as if you had paid them in today's 3000 era. And so when you pay with them down the line, yours will have grown with same rate as the tution increased from 3000 to 10,000

Savings plan on the other hand work differently. Say you put 100 dollars today in a savings plan. Now you will have options to put in a portfolio heavy with stocks and get chance to earn more. Or put in a bit conservative portfolio with less exposure to stocks and more of bonds and money market.

There is another flavor of savings plan which is time based. Say your 10 year old goes to college 8 years from now. So you can put money in a plan which is named something like "2015 portfolio". and for your 5 year old in a plan something like "2020 portfolio". The fund manager in these time based portfolio will make sure that the balance of stocks/bonds/cash in your portfolio is in accordance with the time horizon available. As the time to college approaches, more and more money will be pulled from stocks and put to bonds/cash

Hope this helps. Basically in prepaid 529 plan you have a cusion against high increases in tution. But with 529 saving plan you take a risk but anticipate to have your money grow even faster than tution increases.

It depends on you as to which one you choose.

My advice. Start fast, but then do not rush ! Think well before putting your first dollar. But atleast start setting aside the money until you finalize the plan.

Napwala has some good info. The downside to prepaid is what if your child wants to go to a different school? You are out of luck. The flexibility of a regualar 529 is way more powerful. You can pass to family members including first cousins. The new law signed Aug 17 made sure the sunset would not expire in 2011 meaning all earnings will grow and can be used for higher education TAX-FREE. Also, you decide how and when the money comes out but assets are out of your estate.

reductions bond have an fairly low go back, there are more beneficial efficient concepts of saving for a college training. One answer pronounced the UGMA and UTMA costs and indicated that you retained administration of the money - fake. those are irrevocable presents. you should use the money earlier to the age of majority for the youngster's nicely-being, yet you should maintain documentation. The 529 plans furnish you with tremendous flexibility interior the variety of funding, the custodian (inspect diverse state plans) and the beneficiary. If between the twins qualifies for an complete training scholarship - you should use each and every of the money for the last twin. the different concerns related to retirement are valid and also you would opt to spend your time with a monetary planner to ascertain if a 529, Coverdell or Pre-paid training is the most proper motorized vehicle on your reductions. maximum proper desires for healthful and satisfied little ones. strong success.

Good description above^^^. You can get more detail at the following sites.

Here's an article on Prepaid plans:

http://themoneyalert.com/APrepaidEducation.html

And one on the different types of plans:

http://themoneyalert.com/TheUniversityofOuchArticl...

The authority on 529's:

http://www.savingforcollege.com/

First off, you should be applauded for your advanced planning and generosity for your children. I am in a similar situation. I live in the state of Illinois. There is information at a few websites that might be of interest to you. At www.collegeillinois.com, there is information about prepaid tuition plans and college saving in general, including links to other sites. This might be of interest even if you don't live in Illinois. One of the links is to the website www.savingforcollege.com, which has a broad range of information.

For me, I've chosen to focus on the pre-paid tuition route. This allows our family to "lock in" tuition for our daughter at today's tuition rates. We are in a 10-year plan with installment payments to cover a pre-set number of semesters at the 2006 tuition and fee rate for any public institution in Illinois. The 529 savings plan, as an alternative, allows you to save money in a tax-free account and invest in a range of investment options to grow that money, which could be used to pay future school expenses at the going rate at that time. I've chosen to focus on the pre-paid option because I believe college expenses will increase at a greater rate than I could expect to earn on investments in the 529 savings plan.

Some factors that would favor the 529 savings plan include the possibility that the savings plan could be used for secondary school expenses and books [confirm with your 529 savings plan] (the pre-paid tuition plan covers only tuition and required fees). To this point, one can have both a pre-paid plan for semester fees and a 529 savings plan for books, etc. Also, a potential drawback of the pre-paid tuition plan (depending on the state?) is potential limitations on what schools are covered. The Illinois plan covers any state school in Illinois, and pays the average of the Illinois state school fees toward enrollment in a private school in Illinois or other participating college or university elsewhere in the country.

So, my opinion is that the pre-paid vs. savings choice depends to a great degree on the personal situation. For my family, I have chosen the pre-paid plan as the primary savings vehicle to "lock-in" today's college rates.

Good luck to you.