- 529 Plans - established by the U.S. Congress; run by states and by colleges.
- 529 Plan - an IRS designation relating to taxability and penalties. Those two words should not be ignored. Click the link to the relevant section (http://www.irs.gov/uac/529-Plans:-Questions-and-Answers).
- 529 Plan - a cash asset available for college expenses. Your Expected Family Contributions (EFC) (http://www.fafsa.ed.gov) may go up and your financial aid offer go down.
- 529 Plans - unlimited contributions allowed (subject to the parent/child gift exclusion; refer to the IRS Q&A linked above). Large accounts, however, may leave an undistributed balance, which may be subject to taxes and penalties.
- 529 Plans may be shared within families; given to friends or anyone else.
- Conservative investment practices may mitigate market risk for a 529 Plans. The flip side of that is a history of modest gains inside of 529 accounts (http://www.forbes.com/sites/learnvest/2013/07/18/529-savings-plans-9-mistakes-people-often-make/).
- Families with large EFC-exposed assets (http://www.fafsa.ed.gov) may benefit the most from 529 Plans for the tax savings possibilities. However, the IRS gift exclusion allowance should also be considered (see Forbes article linked above).
- Families with high Adjusted Gross Incomes (IRS 1040, line 37) may also derive a benefit from 529 Plans.
- If scholarships and college tuition concessions are of little or no importance, the taxes saved in a 529 Plan are worth considering.
- You have to spend the money on "qualified educational expenses," not necessarily on what you think your student needs for a particular year of college (a car; off-campus housing; airfare home at a holiday).
- Distributions drain the account. The magic of compounding is eliminated.
- Consider a college savings strategy that has the option of using your asset as collateral, while continuing to enjoy uninterrupted compounding growth.
$24,000 every year that's what one, state-supported university publishes as the cost to attend for residents. Out-of-state students add another $27,000 to make it $51,000 every year.
How do you manage to pay for that? Heard of the 529 Plan? It takes its name from the section of the IRS Code that stipulates its requirements and advantages. Not a bad plan, in that you deposit money from your take-home-pay (yes after you've had your taxes withheld) into an account that, from then on, will grow without tax obligations IF . . .
That is a big IF.
- If you do not need it for something else urgent and expensive.
- If those education costs line up with the approved list of expenses.
- If your children attend college and spend all of the 529 account.
- If your plan does well in the stock market.
- If, when you need the money, the market isn't having a major correction.
- If you do not mind paying a hefty penalty plus the tax owed if an if happens.
Let's just say, for the sake of conversation, you dodge all of that. There is still the small matter of once you spend the money for approved college expenses, that's it. All gone. Account balance zero.
You managed to save $100,000 for each child. Each child now has a college diploma and is looking for work, getting married, sprouting your grandchildren, trying to buy a house and all of those hundreds of thousands of dollars you had scrimped and sacrificed to save poof! -- are gone.
What if, instead of filling up that college savings tank full of money, and then draining it dry, you could have collateralized those funds?
What if your children, who earned the diploma, helped pay that all back as part of their future retirement?
In other words, what if your hundreds of thousands of dollars could have kept compounding interest while you used them as collateral to pay the expenses of a college education?
- 11th Grade, heading to college -- What should I be doing? Part 3
- 11th Grade, heading to college -- What should I be doing? Part 2
- 11th Grade, heading to college -- What should I be doing for admissions and financial aid?
- Four-Year Myth -- What You Can Do Now
- The Four-Year Myth -- why are students not graduating in 4 years?
- On-Time Graduation is Not Optional
- Four-Year Myth -- Graduation Rates Matter
- The 4 Year Myth -- Hidden Costs
- The 4 Year Myth -- a true story
- The Four Year Myth
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