Products & Their RisksQuestion 166 of 398
A prepaid tuition plan, a type of 529 plan, primarily allows a family to:
a.Deduct all contributions from federal income tax
b.Invest in individual stocks chosen by the account owner
c.Withdraw funds tax-free for any purpose at any time
d.Lock in future tuition at today's prices for eligible institutions
Explanation
A prepaid tuition plan lets families pay for future college tuition at current rates, hedging against rising tuition costs at participating schools. This differs from a 529 college savings plan, which invests contributions in market-based portfolios whose value fluctuates. Both are 529 plans, but the prepaid version locks in tuition rather than exposing savings to market returns.
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