In our last article, we discussed the 529 Savings Plan. This article will focus on the other 529 plan, the Prepaid Tuition Plan. In Maryland, this is also known as the Prepaid College Trust. This plan allows you to prepay tuition at today’s tuition rates at eligible colleges and universities. The funds may be used to pay the full in-state tuition and mandatory fees at any Maryland public college or could be used to pay tuition at an eligible private or out-of-state college (up to the Weighted Average Tuition). Although Prepaid Tuition Plans may be used both in and out of state, either the account holder or the beneficiary must be a Maryland or D.C. resident at the time of enrollment.
With a Prepaid Tuition Plan, there are various payment options to choose from. Like the 529 savings plan, the prepaid tuition plan allows the funds to grow tax-deferred and withdrawals for the beneficiary’s “qualified education expenses” are exempt from federal income tax. It is important to note that Prepaid Tuition Plans must be open for at least three years before tuition benefits can be paid, even though these plans may be opened for children from newborn through twelfth grade.
If a beneficiary chooses to delay college, the beneficiary has the number of years purchased in the account plus up to ten years after his/her projected college enrollment year to begin using benefits. In our next article, we will discuss the ways in which the SECURE Act, which became effective January 1, 2020, changes 529 plans.