That special treatment makes state tuition plans especially appealing to high-income grandparents seeking a way to transfer wealth. The contributor retains control of decisions about disbursement. So if parents or grandparents disapprove of Johnny's plan to study the logistics of rock concert tours at Hemp State U., they can transfer the account to another beneficiary. Rules are drawn to make sure the money goes for college expenses, and penalties apply when it is used for something else. Kalman Chany, author of Paying for College Without Going Broke , says state officials and companies that manage the plans are only pitching the plans' good points.
Most states are intent on locking participants into the plan.
As a result, penalties for canceling an account can be steep. Lack of investment choice. In most savings plans, the assets are allocated, according to the beneficiary's age, among stocks, bonds and money market mutual funds. The younger the beneficiary, the more risk is taken. By the time the student reaches college, most of the account is invested in low-risk bonds and money market mutual funds.