As a result of the Deficit Reduction Act of 2005, 529 prepaid plans, such as the Texas Guaranteed Tuition Plan (TGTP), will be treated as an asset of the account owner for federal financial aid purposes effective July 1, 2006. 529 prepaid plans were previously considered a student resource, which resulted in a dollar-for-dollar reduction in the student's financial need so this is a welcome change. However, because instructions for the 2006/2007 FAFSA form said to exclude 529 prepaid plans, some college financial aid offices are now asking students for the current value of their 529 prepaid plans. For financial aid purposes, the value of your TGTP contract can be calculated by multiplying the number of semester hours remaining on your contract by the current average tuition rate for your plan type. For example, a senior college plan with 64 hours has a value of $13,057.92 (64 hours x $204.03 per hour).

Current average tuition and required fee rates are:

• $76.43 for junior college plan hours
• $204.03 for senior college plan hours
• $526.88 for private college plan hours

The exemption from federal income tax for withdrawals from Internal Revenue Code Section 529 plans that are used for qualified tuition expenses was scheduled to expire on December 31, 2010. The Pension Protection Act (H. R. 4), which was recently passed by Congress and signed by President Bush on August 17, 2006, made the exemption permanent. This exemption applies to all Qualified Tuition Plans, such as the Texas Guaranteed Tuition Plan (TGTP).

TGTP cannot provide investment or tax advice, and the foregoing information should not be construed as legal, financial, or tax advice with respect to the consequences for any particular individual as a result of the purchase of or distribution from a TGTP prepaid tuition contract. This information is not a substitute for discussing your particular situation with a tax professional or the IRS.