What’s a 529 College Savings Plan?

A 529 plan is a savings plan that allows parents to put pre-tax money into an investment account. The money grows in lower-yield, safer portfolio types, and it is used for school funding. Historically, 529 plans have only been allowed for college funding; recent rules changes also allow 529 money to now be used for private school tuition for elementary and secondary school 👨‍🎓👦👩

Pros of 529 plans:

• 529 contributions are tax-deductible 👍

• Paying for qualified education expenses is tax-free: When you pay for tuition/fees (and room and board, for some plans), you never pay income tax on the money you withdraw 👍

Cons of 529 plans: Sadly, I personally think these outweigh the benefits for most families 😖

• Having a 529 could impact your child’s ability to receive federal aid money and scholarships. Many scholarships, and the FAFSA, require you to disclose the amount you’ve saved in your 529 😟

• Your range of portfolio options is limited (although you are allowed to change your portfolio strategy twice per year).

• Fees can add up. You may be paying initial enrollment fees, broker fees, administrative fees, annual account maintenance fees, AND asset management fees. Yikes! 😲😵

• And.. what if it turns out that your kid is not college material? Your child/children may have other strengths and interests that you’d like to support, and you’ve been saving for 5, 10, or 15 years… but you can’t access your 529 savings money for any reason other than tuition/fees (or, for some plans, room and board). Otherwise, you’ll pay income tax plus a 10% penalty on those withdrawals! The wasted effort hurts me already…😯😪

There. Now you know more about 529 plans than most other Americans. Good job, you! 😁 🏅

Now That’s Smart Money 🧐