|Is my rate of return guaranteed under a 529 plan?|
That depends on the type of 529 plan--a college savings plan or a prepaid tuition plan. Think of a college savings plan as an investment plan run by a state. The state or its agent invests your contributions in one of several pre-established investment portfolios. If the portfolio is age-based, the investments will be growth-oriented when the beneficiary is younger, and the state will shift money into more conservative investment vehicles as your child approaches college age. If the portfolio is not age-based, the types of investments (e.g., growth, balanced, conservative) will stay the same as the beneficiary grows older. Although you can potentially earn a higher rate of return with college savings plans, the rate of return is not guaranteed, and there's a chance you could lose money.
Prepaid tuition plans, though, generally guarantee you a minimum rate of return to ensure that you keep up with college inflation. In effect, you lock in tomorrow's tuition at today's prices. However, you'll generally be limited to the rate of return promised by your plan--you won't be entitled to any surplus.