- Every state offers some type of Section 529 plan, allowing residents to save money tax-free for tuition at state colleges and universities. Sixteen states, including Florida, Massachusetts and Texas offer both prepaid tuition plans and college savings plans. Thirty-three states, including California, New York and Ohio, offer only college savings plans. Washington state offers only a prepaid tuition plan. All of these 529 plans may be used at any public college or university located within the state where the student is a resident. You may use the plans in states where the student is not resident, but the plan may not cover the entire cost of tuition.
- A pre-paid 529 plan rises in value at the same rate as tuition at your state's public colleges and universities. This allows you to pay for future college study at today's rates. These plans are run by each state and will pay all tuition and fees at any public college in the student's state. If the students decides to attend a private college, or a college in another state, the plan will pay up to the in-state tuition in the student's home state and the student will have to pay the difference between that and out-of-state tuition at the college they chose to attend.
- Section 529 college savings plans allow you to save money for college tax-free, but do not guarantee to grow at the same rate as tuition in your state. Instead, they generally guarantee a minimum rate of return. The plans are designed to earn enough to pay for residents' tuition at any public college or university in the students' state, but there may be shortfalls. As with prepaid plans, if you use the plan to pay for a private college, or a public college in another state, where the student is not resident, the plan will pay only the equivalent of in-state tuition costs and the student or their family will need to make up the difference between that and out-of-state tuition.
- The independent 529 plan is a national plan that you can use to pay for tuition at private colleges and universities. This is a prepaid plan, where students or their families buy certificates that are guaranteed to pay a certain percentage of tuition at participating colleges. For example, you can buy a certificate at time of publication worth one percent of tuition, and this will still pay one percent of the tuition in 10 or 15 years -- no matter how much the tuition has increased. As of 2011, this plan may be used at more than 270 colleges and universities around the country, including Stanford, Reed, Smith, University of Chicago, Rice, Notre Dame and MIT. The number of colleges on the plan increases each year.
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