NEW YORK – Wouldn't it be great if there were a way to hedge against the ever-increasing cost of college tuition? Well, there is. Independent 529 is a vehicle that allows you to purchase future semesters at college with today's dollars and do it tax-free.
Most 529 plans are state-sponsored savings programs where you contribute to mutual funds and other investments and watch your money grow tax-free. Then you can spend it on any school you choose. In contrast, Independent 529 is sponsored by private colleges and universities across the country.
Here's how it works: you can deposit up to $165,000 into the plan in return for tuition vouchers good for use at any of the plan's 255 participating schools. Then you use the vouchers between three and 30 years after purchase, when the actual cost of tuition may well have doubled. You're essentially locking in today's prices for college tomorrow and the difference will be federal tax-free.
There are some drawbacks. You'll have to use the vouchers at the participating schools (for a list go to independent529plan.com). If your child, or grandchild, decides to enroll elsewhere, you can get a refund at the rate your money was invested by the program's managers or roll the assets into a state-run 529 plan.
Because tuition varies by school -- and increases will vary too -- you'll have to rely on the plan to tell you how much actual school you've got coming to you.
And you're limiting the growth of your money to the rate of tuition increases (plus a 1% discount you get at the time of purchase). The plan says tuitions have been rising 6% a year, but there's no guarantee they will continue to do so.
On the other hand, traditional 529 plans in many states have come in for criticism for being too risky and loaded with fees and hidden charges. You'll pay none of those here -- and the chances of college tuition going down look slim.
Joseph Hurley, a certified public accountant and founder of savingsforcollege.com, which tracks 529 plans, says the Independent 529 plan is probably best for well-to-do families with a history of attending a particular college.