Which 529 plan is better?

I'm going to be starting a 529 plan for my 7 month son.
I'm torn as to which plan is better.

Both plans you can use at any college in the country from a community college to Harvard. Both plans can be used for tuition, room and board, books, etc. Tuition in my state (WA) has been increasing 7% a year over the past 10 years.

Plan A: Prepaid Tuition. I purchase tuition for 18 years from now at today's price. If I purchase 1 year of tuition, he gets a year paid for in 18 years. (The tuition price is going to be based off the most expensive state school in my state, but can be used at any school anywhere). The downfall I see with this plan is that what if tuition is capped or only goes up 1% a year? That isn't a good return.

Plan B: Investment fund. This plan is basically a mutual fund with tax benefits. I put money in in a plan (I can be conservative or more risky with the investment). In 18 years whatever money is in there can be used for any college related expense as well.

In Plan B,. the downfall I see is if the stock market performs really badly over the next 18 years and I don't get good return either. Plus, what if tuition just skyrockets?

Which plan would you choose and why?

As a former 529 specialist at a major firm I can tell you stay far far away from Pre-paid tuition plans. It limits what schools you can attend, it doesn't always offer the best opportunity for you. There is a lot of fine print on those plans. Feel free to e-mail me if you have more questions because there are so many things you need to consider when looking into 529 plans, but also check out the link below for more information on comparing plans, its the best site I've found for this purpose.

The market will average about 11% per year - history has proven this. So don't worry too much about that.

I would definitely be worried about the potential tuition costs in the coming years - but not in the way you'd think. Higher education is becoming a priority for many states and even for private institutions...financial aid and grants are growing like never before (e.g I could go to Columbia University now, free of charge if my family makes under $60,000 per year).

So I'd go with B.

This would be a great question for http://www.tickerhound.com by the way.

Best,
John
http://www.tickerhound.com
"Where Investors Help Investors"