Sources of Money 23: Federal 529 Savings Plans for Parents and Others

Tuesday’s we review a source of financial aid to help you pay for college

Bob and Margaret wanted to ensure that their grandchildren received a good education. Wise money management allowed them to pay off their mortgage early. They decided to add the majority of their old monthly payment to their retirement. However, they also wanted to give a portion to their grandchildren. They investigated several methods from CD’s, investments, and other instruments. They decided that the 529 Savings Plan best met their needs.

Characteristics of the Federal 529 Savings Plan

The US Securities and Exchange Commission states

“A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as ‘qualified tuition plans,’ are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.”

Saving for College tells you

“529 plans are usually categorized as either prepaid or savings plans.

Savings Plans work much like a 401K or IRA by investing your contributions in mutual funds or similar investments. The plan will offer you several investment options from which to choose. Your account will go up or down in value based on the performance of the particular option you select.

Prepaid Plans let you pre-pay all or part of the costs of an in-state public college education. They may also be converted for use at private and out-of-state colleges. The Private College 529 Plan is a separate prepaid plan for private colleges.”

Compare state 529 plans at Savings for College.  College Savings Plans Network answers FAQ.

 

Disadvantages of a 529 Savings Plan

The American Institute of CPAs outlines 13 advantages and 8 disadvantages of a 529 plans. Disadvantages include:

• Fees and expenses for administration
• Taxed withdrawals for non educational purposes
• Limited pre-established portfolios
• Generally limited state plans
• Applies to under-graduate tuition, not other costs
• Requires all tuition credits used before the beneficiary reaches age 30
• Do not guarantee your financial returns
• Are not legally required to allow changes

Thursday we will spotlight how reusable essays have changed over the past 5 years

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