Most families begin saving for their child's college education and tuition long before they are old enough to attend college. While traditional savings accounts, CD's, and investment accounts are all common ways to sock away tuition money, many people overlook prepaid plans. If used wisely, prepaid plans for college can bridge the gap between not having enough tuition for college and an easy admission.

 What is a prepaid plan? Simply put, it allows you to purchase shares towards college tuition for a 4-year college at the rate it is today. Locking in today's rate guarantees that those shares will always be worth a year of tuition at the college, no matter how much the cost increases by the time of college attendance. The money saved in the long run makes a prepaid plan well worth considering.

Which schools honor the plan? While the plans are typically used for attendance at public and state institutions, private schools are following the lead in honoring the prepaid plain. Investing in the private savings plan assures that college tuition will never go up at these pricier schools. Future college students, however, will still need to meet the more rigid entrance requirements before attending the college, regardless of their financial standing with a prepaid plan.

What about taxes? One major advantage of a prepaid plan is that it is tax-deferred. This means that money put into the prepaid plan in any given tax year won't be counted as income for tax purposes, which can also save individuals more money. Depending on your state, there is a limit to the amount of money that can be contributed to the prepaid plan for tax-saving purposes. Qualified withdrawals from the plan are also tax-free when used for educational purposes.

Who can contribute? Future college students with a strong family support system will appreciate the flexibility these prepaid plans offer. Parents, grandparents, and others can make contributions to the student's plan.

How will contributions affect financial aid eligibility? Until recently, participation in a prepaid plan had negative consequences for those college students hoping to receive additional financial aid. New legislation in the past few years, however, has decreased the impact this money would have on potential government and school funding towards tuition. Savings in the plan will still be considered as assets, but will count for no more than any other college savings or 529-plan.

What if my child doesn't go to college? In most cases, it is simple to transfer the prepaid plan account to another future college student in the case of death or a decision not to attend an eligible college. Some families may find that they saved more money than what was needed for the college tuition, and a balance remained after all tuition was paid for the college student. The remainder of funds may be transferred to another student beneficiary. It is important to note that withdrawals from the prepaid plain account that aren't used appropriately will be assessed a 10% penalty and may be subject to additional taxes.

Prepaid college plans are becoming a more attractive choice for parents of future college students. It is an especially useful savings tool for younger children, who will see greater benefits from an earlier locked-in tuition rate. With the increasing costs of room and board, books, and fees, it is reassuring to know that tuition will be covered!