529 prepaid college trust rollover to standard 529

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dvk1055
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Joined: Tue Jan 01, 2019 9:08 am

529 prepaid college trust rollover to standard 529

Post by dvk1055 » Tue Jan 01, 2019 9:56 am

Hello,

If one were to rollover a 529 prepaid college trust (e.g. Maryland 529 prepaid) to a standard Maryland 529 due to the beneficiary not attending a Maryland public college, doesn't the value of the investment significantly decrease? It appears that if the beneficiary in the Maryland plan attends an out of state or private school the prepaid trust would pay "half the weighted value of tuition at the time". What is the incentive to buy a prepaid trust for a kindergartener (even if guaranteed backing for shortfalls by a state) without knowing where your child will attend school in the future if the return could be only 2% if you need move it out of the trust?

Thank you in advance for the input!

Ostentatious
Posts: 258
Joined: Fri Aug 15, 2014 6:34 pm

Re: 529 prepaid college trust rollover to standard 529

Post by Ostentatious » Tue Jan 01, 2019 10:25 am

You’re right. It is a type of gamble. That is why I opted for the Maryland College Investment Plan. You have more flexibility and you may come up on top if your child attends non Maryland college. Alternatively you can contribute to both plans but I’m not sure how beneficial that would be if your child attends out of state college. In my opinion, the Maryland College Investment Plan wins hands down.

nigel_ht
Posts: 876
Joined: Tue Jan 01, 2019 10:14 am

Re: 529 prepaid college trust rollover to standard 529

Post by nigel_ht » Tue Jan 01, 2019 12:03 pm

I purchased a MD prepaid for my son with the idea that I could move it down to his siblings if he chooses to go somewhere else.

The text from the site is:

"At a private or out of state college, the Prepaid College Trust will pay Tuition and mandatory fees up to either the Weighted Average Tuition or your Minimum Benefit, whichever is greater. You would then have to make up any difference."

The definition of the weighted average tuition is:

"The Weighted Average Tuition is the in-state or in-county tuition and mandatory fees at each Maryland public college times the number of full-time equivalent in-state or in-county students enrolled at that college, added together. This total is then divided by the number of full-time equivalent in-state or in-county students enrolled at all Maryland public colleges. There is a separate calculation for the 4-year public colleges and the 2-year public community colleges in Maryland. We calculate the Weighted Average Tuition once each year, typically in the fall for the following year by applying its projected increase for tuition and mandatory fees to the current year’s Weighted Average Tuition.

The Weighted Average Tuition for the 2018-2019 academic year is $10,244 for 4-year public colleges and $4,761 for community colleges."

The minimum benefit has been 0% since 2008 so don't count on that. :)

On the other hand the performance of the Portfolio 2024 in 2018 was -5.14%. It wasn't a very good year for my kids' 529 investment plan. Even the 2021 which is about 70% bonds was down 2.57% in 2018...

The wording in the section you quote is:

"If your student attends a 4-year eligible institution that is a private or out-of-state college, we will pay the actual tuition each semester (or the equivalent) up to one half of the weighted average tuition for the University Plan, or your minimum benefit, whichever is greater."

The weighted average tuition covers the whole year. So you get $5,122 per semester from the prepaid trust.

For a half second I panicked when I read "half of the weighted average"... :)

For a kindergartener the cost this year is $47,496.00 for 4 years or $11874 per year of college. That's a $1630 premium vs what tuition might cost in 12 years...which could be $0 but is unlikely to be. The weighted average was $8,113 in 2010...so 2.95%/year over the last 8 years.

This tracks national averages (Maryland makes it tough to find the historical numbers)

https://trends.collegeboard.org/college ... -over-time

https://www.npr.org/sections/ed/2017/08 ... -come-down

It's been flat for the last 5 years. Would I bother again? Maybe. For a kindergartener? Mmm...probably not. I don't see the same 5+% tuition increases we saw a decade ago in the current environment. I bought one as a simple fire-and-forget insurance policy against the market crashing at the exact wrong instant with two kids heading into college at nearly the same time...

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