than most, with only small penalties for attending out-of-state colleges, but some other states' plans are very rigid. Read the fine print!
"Also, be prepared to be hit with a big tax bill down the road if you purchase one of these plans. In most states, Michigan included, the parents have to pay tax on the difference between what they paid for the prepaid tuition and the actual four-year costs when the child attends college. That difference can be substantial, and so can your tax liability! You may be convinced that the IRS is unfair in this regard, but that doesn't make saving enough money to cover the tax liability any easier.
"Along with U.S. Savings Bonds and prepaid tuition plans, there are other financial products that are potentially useful when saving for your child's education.
"You can establish an education savings account—or as some call it, an education IRA. This is a newer type of savings plan that enables you to make contributions of up to five hundred dollars per year in a tax-deferred account that you set up with a mutual fund, brokerage, or bank. Contributions are not deductible, but distributions later on will be tax-free as long as they are used to pay for qualified education expenses. There are some restrictions, of course. Your income must not exceed one hundred and fifty thousand—or ninety-five thousand if you are single—in order to make a full contribution, and you can't contribute to an education savings account and a state prepaid tuition program in the same year. And in the year or years you take distributions, your opportunities to use some of the available education credits may be limited.
"Some states are now offering tax-free municipal bonds called baccalaureate bonds. Interest on them is exempt from