About 40 states offer tuition programs, and just about every other state is expected to follow suit in the near future. State tuition programs are a response to an outcry from families struggling with the rising cost of higher education and the mountain of debt that students are buried under when they graduate. The Diva believes that saving makes a lot more sense than debt, and she urges you, as a taxpayer, to investigate what your state has to offer. Earnings are taxed when the money is withdrawn for qualified higher education costs. You can start a QSTP as soon as the stork delivers the future graduate.
Contributions are eligible for the gift-tax exclusion.
Investments are directed by the state, not the account owner, although some states offer minimal choices. Withdrawals can be used for any college in the country. If the potential graduate decides not to go to college, a new beneficiary can be named on the account. Prepaid tuition plans These plans were designed to offer families a hedge against inflation. Tuition is set based on the age of the child and current in-state tuition rates, and payments are made up front or in installments.