Each state determines the maximum amount you may contribute annually per child. The advantage of state savings plans is that your savings are not subject to state and local taxes and may grow faster than a taxable investment. Although you are not eligible for a federal tax deduction, taxes on the interest will be deferred until your child goes to school. What's more, this interest will be taxed based on your child's lower tax bracket. The potential for returns, flexibility, and tax benefits vary from state to state.
Some states pay a low interest rate.
Be sure to compare the benefits of other state's programs since most states offer resident and non-resident participation. Earnings are indexed to the average tuition cost increases. This means that you can lock in tuition at current rates. Your state promises that the amount you set aside will buy the same amount of tuition at a state school in the future. Since tuition rates have been rising about twice the inflation rate, you may earn more than the interest from bank savings accounts and certificates of deposits.