Reply to 529 question - Maryland. Advice needed!

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]MD's prepaid plan is better than most states' prepaid plan because whereever you go (in-state or out-of-state) you will get paid the in-state tuition (technically the weighted instate tuition but it works out to pretty much be the  UMD-CP tuition).

So you have to ask yourself whether you think in-state tuition will rise at a faster rate than your alternative investment (whatever mix of stocks and bonds), and whether you'd rather have U-MD tuition guaranteed (subject to the legislative guarantee) or the chance for more/less on your own.

I don't think the risk of not getting your prepaid tuition is that significant-- the plan is currently 125% overfunded and the way the legislative guarantee works is the governor has to include the funding in his budget and the legislature would have to affirmatively take it out if there was a shortfall, which to me seems a little unlikely all things considered.

We tend to be conservative financially and have both types of 529.  We like knowing that 4 years of in-state tuition and fees are paid for, but we also have some money in a separate 529 to cover additional costs like housing, or private school.

BTW, anyone with 200k in the MD 529 (investment plan) might want to consider moving it to a lower expense plan, like Utah.[/quote]

I looked at the 529 prepaid plan, and it looks like the growth is much lower. That would be the only drawback, but I guess if you assume that because the tuition would be weighted and not at the then-current tuition amount, growth is not much of an issue (?)[/quote]

When they calculate your required contribution to the prepaid plan, they build in assumptions about future investment returns and future growth of tuition, i.e. what tuition will be when your kid is in college. The combination of your contributions and their assumptions about returns is calculated to reach that assumed future tuition. Often, prepaid plans adopt conservative assumptions, including assuming low rates of return between now and when your kid enters college. This means that the prepaid plan itself faces less of a risk that what they asked you to contribute will fall short of that future tuition, which they are going to be on the hook for. On the other hand, that conservative rate of return assumption may be lower than what you could earn in the market-based investment plan, but in that case you will be bearing the risk for lower or higher returns.[/quote]

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