SIE practice questionmedium529 Plans — Prepaid vs Savings
What is the difference between a 529 prepaid tuition plan and a 529 savings plan?
- APrepaid plans lock in current tuition rates at specific institutions; savings plans invest in market-based portfolios with variable returns✓ Correct answer
- BThere is no difference — they are the same product
- CSavings plans guarantee a fixed return; prepaid plans have market risk
- DPrepaid plans are only available for graduate school education
Explanation
Why A — Prepaid plans lock in current tuition rates at specific institutions; savings plans invest in market-based portfolios with variable returns
Prepaid tuition plans allow prepayment of future tuition at today's rates, essentially locking in costs at participating (usually in-state public) institutions. Savings plans offer market-based investment options (similar to mutual funds) with returns that vary based on market performance. Savings plans are more flexible regarding school choice. Both offer federal tax-free growth for qualified expenses.
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