Margaret Is Trying to Decide Whether to Place Funds in a Qualified

Essay

Margaret is trying to decide whether to place funds in a qualified tuition program.Her son will be attending college in four years.She is in the 35% marginal tax bracket and she believes she can earn an 7% before tax return on alternative investments.Thus, $10,000 will accumulate to $11,948 (after-tax) in four years.Margaret expects tuition to increase at the rate of 5% each year to $12,155 in four years.Her son will be in the 12% marginal tax bracket in all relevant years.Given these assumptions, should Margaret participate in the qualified tuition program?