The largest drawback to a 529 plan is that colleges consider it when deciding on financial aid. This means your child could receive less financial aid than you might otherwise need.
What are the disadvantages of 529 plan?
- There are significant upfront costs. …
- Your child's need-based aid could be reduced. …
- There are penalties for noneducational withdrawals. …
- There are also penalties for ill-timed withdrawals. …
- You have less say over your investments.
Can I lose money in a 529 plan?
You don't lose unused money in a 529 plan
. The money can still be used for post-secondary education, for another beneficiary who is a qualified family member such as younger siblings, nieces, nephews, or grandchildren, or even for yourself.
How safe is a 529 plan?
529 plans, like other investments in the stock market, can lose money. Investing in the stock market
is never really safe
. … The best advice is to remain invested. Set up a direct-sold 529 plan with automatic investment and don't pay too much attention to the ups and downs.
How long can money remain in a 529 plan?
Money can stay in the account and could eventually be used for graduate school — even if that is 10 or 15 years later. In fact, the money can remain in
the plan indefintely as long as there is a living beneficiary
. Money in the account can also be used by other members of your family.
Is a 529 plan better than a savings account?
A 529 savings plan is
a better option for many than a prepaid plan
. Prepaid plans tie to current market tuition prices. This means that you commit to paying the current college tuition rate AT THE TIME YOU OPEN THE ACCOUNT, even if the rate drops by the time your child is ready to go to college.
Are 529 accounts worth it?
Many people saving for college choose 529 plans as their investment vehicles, and that's for good reason. 529 plans
offer tax advantages
that can help you allocate even more dollars to education expenses. There are a variety of plans available, and you're not limited to just your own state's plan.
Is it better for a parent or grandparent to own a 529 plan?
How Grandparent 529 Plans Affect Financial Aid. Overall, 529 plans have a minimal effect on financial aid. But,
the FAFSA treats parent-owned accounts more favorably
. For example, you report 529 plans assets as parent assets, which can only reduce aid eligibility by a maximum 5.64% of the account value.
What is the best college savings plan?
529 Plan
. If you want to save more than $2,000 a year for your children's college education or if you don't meet the income limits for an ESA, then a 529 Plan could be a better option.
How much can I put in 529 per year?
This includes 529 Savings Plan contributions. In 2018, an individual can give an annual gift
of up to $15,000
to a person without paying taxes. If the gift exceeds $15,000, then the donor (not the gift recipient) may be required to pay taxes on the gift amount. For a married couple, this amount doubles.
When Must 529 funds be withdrawn?
529 plans do not have withdrawal deadlines
. A 529 plan account owner is not required to take a distribution when the beneficiary reaches a certain age or within a specified number of years after high school graduation, and funds can remain in the 529 plan account indefinitely.
Can I use my child's 529 for myself?
A 529 account can be used for other types of education besides college, including trade and vocational schools and more. As the 529 account owner, you
always have the right to change beneficiaries to
another family member—or even yourself.
What are the pros and cons of a 529 savings account?
| Advantages Disadvantages | Federal income tax benefits, and sometimes state tax benefits Must use funds for education | Low maintenance Limitations on state tax benefits | High contribution limits No self-directed investments | Flexibility Fees |
|---|
What's the best account to open for a baby?
- 529 College Savings Plan. …
- Checking Account. …
- High-Interest Saving Account for an Emergency Fund. …
- Roth IRA. …
- Taxable Brokerage Account. …
- Credit Cards. …
- Credit Builder Loan. …
- Health Savings Account (HSA)
How much can you contribute to a 529 plan in 2020?
Excess contributions above
$15,000
must be reported on IRS Form 709 and will count against the taxpayer's lifetime estate and gift tax exemption amount ($11.58 million in 2020).
