Can 529 plans be used for overseas education?

What are the differences between prepaid 529 plan and 529 saving plan? And which one do you recommend?

• I have kids aged 10 and 5 and would like to open 529 plans to prepare for their college education. Then I read about these two different plans. Which criteria should I use to go ...show more

• Answer:

  First off, you should be applauded for your advanced planning and generosity for your children. I am in a similar situation. I live in the state of Illinois. There is information at a few websites that might be of interest to you. At www.collegeillinois.com, there is information about prepaid tuition plans and college saving in general, including links to other sites. This might be of interest even if you don't live in Illinois. One of the links is to the website www.savingforcollege.com, which has a broad range of information. For me, I've chosen to focus on the pre-paid tuition route. This allows our family to "lock in" tuition for our daughter at today's tuition rates. We are in a 10-year plan with installment payments to cover a pre-set number of semesters at the 2006 tuition and fee rate for any public institution in Illinois. The 529 savings plan, as an alternative, allows you to save money in a tax-free account and invest in a range of investment options to grow that money, which could be used to pay future school expenses at the going rate at that time. I've chosen to focus on the pre-paid option because I believe college expenses will increase at a greater rate than I could expect to earn on investments in the 529 savings plan. Some factors that would favor the 529 savings plan include the possibility that the savings plan could be used for secondary school expenses and books [confirm with your 529 savings plan] (the pre-paid tuition plan covers only tuition and required fees). To this point, one can have both a pre-paid plan for semester fees and a 529 savings plan for books, etc. Also, a potential drawback of the pre-paid tuition plan (depending on the state?) is potential limitations on what schools are covered. The Illinois plan covers any state school in Illinois, and pays the average of the Illinois state school fees toward enrollment in a private school in Illinois or other participating college or university elsewhere in the country. So, my opinion is that the pre-paid vs. savings choice depends to a great degree on the personal situation. For my family, I have chosen the pre-paid plan as the primary savings vehicle to "lock-in" today's college rates. Good luck to you.