COLLEGE SAVINGS PLANS
Alabama's Section 529 College Savings Programs

Section 529 of the Internal Revenue Code authorizes states to create two types of college savings accounts - prepaid tuition plans and college savings programs. 49 states have created a prepaid tuition plan, a college savings program, or both. Alabama is one of the states offering both a prepaid college tuition program and a college savings program.

Alabama Prepaid Affordable College Tuition (PACT) Plan

Alabama was the third state in the nation to implement a prepaid college tuition program when the PACT program began operating in March 1990. PACT is a plan where a contract is purchased to prepay future undergraduate college tuition and mandatory fees. To date, the PACT program has over 53,500 active accounts and has paid out over $100 million in tuition and mandatory fee payments to various colleges and universities. This year, over 12,000 students are eligible to use PACT benefits to pay for college.

The greatest advantage is realized by enrolling children as early as possible since contract costs increase with the age of the child. The amount of benefits received from a PACT contract is actuarially determined so that tuition costs will be met, regardless of future increases in tuition and fees. The contract provides payment for 135 semester hours of tuition and 8 semesters of mandatory fee payments at any Alabama public college or university. The contract can also be used at private or out-of-state institutions. PACT will pay the average tuition of Alabama's public four-year institutions to any private or out-of-state institution.

Alabama Higher Education 529 Fund

In June of 2002, the Alabama State Treasurer's Office launched a second "529" plan, the Alabama Higher Education 529 Fund. The 529 Fund allows parents to contribute to an individual account within the 529 Trust Fund, choose from several investment alternatives, and later reap the investment results of that particular account. The Alabama Higher Education 529 Fund is professionally managed by Van Kampen Investments and is designed to allow families to set aside money each month to invest in their child's future college education. Unlike the PACT program, benefits of an Alabama Higher Education 529 Fund account can be used to pay for college expenses in addition to tuition and fees, such as room and board and books. Distributions can be used to pay for college expenses at any accredited public or private school in the United States. Currently, over 12,000 accounts have been set up in the 529 Fund, totaling $101 million in investments.

For additional information about either college savings program, please contact Anthony Leigh, Deputy Treasurer, at 334-242-7500.

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