And for Illinois residents, the earnings are exempt from state income taxes. These factors, and others, proved so attractive to Trinka, the insurance brokerage owner, that he stopped adding to the custodial accounts he was building up college costs and switched to the Bright Start plan. The Mendonsas, in contrast, are leaning toward investing in Rhode Island's college-savings plan because their financial plannerlikes the investment options there. The second type of state-sponsored 529 plan is the prepaid tuition plan, offered by 18 states, up from six states in 1995. Under the program, run by the Illinois Student Assistance Commission, participants essentially pay today's prices for tomorrow's tuition and fees.
Participants can purchase contracts to pay for one to nine semesters of future tuition and fees.
The price is roughly equivalent to the current average tuition and fee cost at Illinois public universities and community colleges, though the cost is slightly higher if you use a payment plan instead of a lump sum. The return is equivalent to the rise in tuition and fees at Illinois universities and colleges from the time the investment is made until the time the child goes to college. If the child eventually goes to a public university or college in Illinois, those costs are covered. If the student goes elsewhere, the program will pay the mean-weighted average cost from comparable Illinois institutions. But investors willing to take a little more risk may be able to get a better return elsewhere.