Today there’s a new way to save for college that offers you substantial advantages over all other options in two key ways: Scholars Choice is more flexible, and, as a Section 529 plan, offers you powerful tax advantages that can’t be found anywhere else in the tax code.
First, let me briefly explain Section 529 plans. There are 2 kinds of 529 plans, both of which are managed at the state level:
1) “Prepaid Tuition Plans,” which have been around since 1987. With these plans, parents pay for future tuition at current prices. In other words, investments in these plans earn a rate of return equal to the rising cost of college. As we saw earlier, that rate has been as high as 7%, but has also been much lower in some states.
2) “College Savings Plans” were introduced in 1997 as an alternative to the prepaid plans. With college savings plans, your savings are invested -- usually in portfolios of mutual funds with allocations that become more conservative as the child approaches college years. Your return is based entirely on the performance of the underlying funds. Unlike prepaid tuition plans, you gain access to potential stock market returns.
