Home > Financial Aid > College Savings Accounts > An Introduction To 529 Plans The Good The Bad And The Inconsequential

An Introduction to 529 Plans; The Good the Bad and the Inconsequential

Whether your child is 15 months or 15 years old, now is the time develop a savings strategy for college. Higher education is expensive, but it is a necessity. The workplace has become so competitive that even entry level positions are difficult to secure without a diploma. Fortunately, the Federal Government authorized the creation of savings programs in an attempt to help millions of families afford to put their kids through college. The 529 Plan is designed to simplify the process of creating a college fund, and make the funds efficient.

An Overview of 529 Benefits

529 plans are named after section 529 of the Internal Revenue Code. They are designed to allow parents tax-free withdrawals for qualified educational expenses. The investment strategies, tax benefits, and incentives offered by 529 plans vary by state so consider the advantages of both your state and others. Some plans allow contributions as little as $5 a month so everyone can afford to put money away. Benefits include tax-deferred growth on deposits, protection from bankruptcy, and the ability to use funds at most colleges in U.S. and hundreds of institutions abroad.

Costs Worth Considering

State sponsored 529 plans are a great option for parents looking to invest money outside their stock. The Federal Government has outlined requirements of an approved plan, but the details affecting your pocket book vary by state. Review as many plans as possible before determining which plan is best. In some states, residency determines eligibility and access to benefits. If you are considering an out-of-state plan, understand how fees and tax penalties affect your benefits. Look at all of your options before choosing the best plan.

A big disadvantage to the 529 program its inflexibility. 529 funds can only be used for “qualified” higher education expenses. If your child does not go to college, the benefits are overrun by tax penalties. Unless you are 100% positive your kindergartener will be going to college, be cautious when looking into a 529 savings plan.

Beware of the following fees: Estimated underlying fund expenses, state fees, program manager fees, miscellaneous fees, annual distribution fees, total annual asset based fees, and account maintenance fees. Fees vary by state, so weigh your options.

Last Edited: November 2015

Latest College & Financial Aid News

Gay Student Banned from Publically Receiving Scholarship

May 5, 2016

by Susan Dutca

An openly gay student at Dowling Catholic High School decided to transform stigma into success by serving as a leader and advocate for LGBT rights at his school. Even after creating a gay-straight alliance and being awarded the Gold Matthew Shepard Scholarship, he was told that he could not receive the scholarship at the annual senior awards ceremony. Last April, Tyler [...]

POTUS' Daughter to Attend Harvard University after Gap Year

May 3, 2016

by Susan Dutca

Malia Obama won't be the first child of a president to be accepted into Harvard University, but her decision to take a gap year sets her apart from the traditional college-bound student. As the gap year trend gains popularity in the US, there is still some reluctance in putting pause on a college education. Could it pose some trouble for those who aren’t socialites? Despite [...]

Balling on a Tight Budget with Limited DI Basketball Scholarships

April 29, 2016

by Susan Dutca

117 underclassmen recently took advantage of the new NCAA rule which allows them to test the NBA waters without losing NCAA eligibility as long as they don't hire an agent. However, talented athletes are stuck between choosing to play on scholarships or play professionally. Division I schools are balling on a tight budget, with only 13 scholarships available per team. With the constant [...]

Follow Us:

facebook twitter rss feed