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The Short Answer

For Most College Savers, Prepaid 529 Plans Don't Make the Grade

Investment in prepaid 529 plans continues to decline, and in many cases it's not hard to see why.

Prepaid 529 plans have been steadily declining in popularity while traditional 529 college savings vehicles have continued to gather assets. 

Conventional 529 college savings plans are popular for good reason--they offer lots of advantages and flexibility for college savers. You invest aftertax dollars in a plan, usually age-based, which provides a diversified investment allocation. The investment mix gradually reallocates, too, reducing equities in favor of fixed income as the beneficiary ages. You are not taxed on the money as it grows in the account, and when you withdraw your money, the capital gains are not taxed either, provided you use the money for a qualified educational expense. Some states also offer a tax break on contributions.