Pay tomorrow's tuition at today's prices? That sounds like a great deal—and it might be, but only under certain circumstances. Here's what you need to understand about prepaid 529 plans.
HOW THEY WORK: In about a dozen states you can essentially buy educational credits now, at current prices or with an added premium, for future use at in-state institutions. There's also one plan, at privatecollege529.com, that lets you prepay for about 300 private schools.
THE CAVEATS: You usually can invest only in your own state, says Joe Hurley, founder of Savingforcollege.com, which keeps a database of the plans' financial details. And while there are bailout options if your child wants to study elsewhere, you may get back only your own investment plus inflation.
BEST FOR: Parents who are pretty confident that their kids will end up at State U should do fine. Florida and Maryland residents also get generous cashouts if your kid heads elsewhere, letting you walk away with about what you would have spent on in-state tuition.
WHEN TO SKIP: For most out-of-staters, of course, prepaid plans are a nonstarter. And if you think your child is going to be aiming for Yale rather than the local public university, steer clear. A traditional 529 is a safer investment bet.