Are 529’s Really the Best Way to Save for College?
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Are 529’s Really the Best Way to Save for College?
Saving for college has become a top priority for many families around the world. As tuition costs continue to rise, parents are seeking the most effective and efficient ways to ensure that their children can afford higher education. One option that is frequently discussed is the 529 savings plan. However, the question remains: are 529’s really the best way to save for college?
Firstly, let’s discuss what a 529 savings plan entails. A 529 plan is a tax-advantaged savings account designed to help families save for education expenses. It offers various investment options, and the funds can be used for qualified education expenses such as tuition, books, and room and board. Additionally, the earnings on a 529 plan are tax-free as long as they are used for educational purposes.
One of the main advantages of a 529 plan is its tax benefits. Contributions made to a 529 plan are not tax-deductible at the federal level, but many states offer tax breaks on contributions. Furthermore, the growth of investments within the plan is tax-free, and withdrawals for educational expenses are also tax-free. This means that the money invested in a 529 plan can grow significantly over time, enhancing the overall savings for college.
Another advantage of 529 plans is their flexibility. While they are established with a designated beneficiary in mind (usually the child), the account owner maintains control over the funds. This means that if the intended beneficiary decides not to attend college or receives a scholarship, the funds can be transferred to another family member without penalty. Additionally, the account owner can change the investment options within the plan twice a year, allowing for adjustments based on market conditions or personal preferences.
However, it is important to consider the potential drawbacks of 529 plans before declaring them to be the best way to save for college. One aspect to consider is the limited investment options. While 529 plans offer a range of investment choices, they are typically managed by a select group of investment firms. This means that the account owner has limited control over how the money is invested, potentially impacting the growth of the account.
Furthermore, 529 plans could potentially affect financial aid eligibility. When determining financial aid packages, colleges take into account the assets owned by the student and their family. While 529 plans are considered a parental asset, they are also seen as a possible resource for paying college expenses. Therefore, depending on the specific circumstances, having significant funds in a 529 plan may reduce the amount of financial aid a student is eligible to receive.
Lastly, 529 plans may have penalties for non-qualified withdrawals. If funds are withdrawn from a 529 plan and not used for qualified education expenses, they are subject to income tax on the earnings, as well as a 10% penalty. While the tax benefits make 529 plans highly advantageous for educational purposes, it is crucial to consider the potential consequences of withdrawing the funds for other reasons.
In conclusion, 529 plans can be an effective way to save for college due to their tax advantages, flexibility, and potential for growth. However, they may not be the best option for every family. It is important to weigh the benefits against the potential drawbacks and to consider individual circumstances when deciding how to save for higher education. Other alternatives such as custodial accounts or investing in stocks and bonds may also warrant exploration. In the end, choosing the best way to save for college is a personal decision that should be based on each family’s unique situation and financial goals.
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Having excess money for kids college is better than getting into debt for college.
this should be edited, unused 529 funds can be rolled into IRAs…
No idea why Dave didn't mention it, but if you do in fact have leftover money in a 529 after the beneficiary graduates college, you can do the following with the leftover funds without penalty:
– Use it towards post-graduate education if the beneficiary decides to pursue a Masters, PhD, etc.
– Change the beneficiary so that the new beneficiary can ise the funds (you can only do this once per year, but multiple accounts can have the same beneficiary)
– Transfer the funds from a 529 to a Roth IRA
There's basically no going wrong by putting "too much" into a 529.
Where is the best place to invest in for a 529? There are so many options. A local bank? Fidelity?
Some big dummies calling into the show
I am on disability and cannot grow a 529 (no "earned income"). What should I do instead?
My question is… is there a penalty to pulling the money out after schooling is done, to use towards something else?
Great question and Dave’s response was terrible.
529 can be used for other things besides college.
Got 529 plan and it’s enough for my college, master n post master
The cover fell ESA is a better option.
I love the fact and I thank God for the day I found this channel/Podcast
The lady has a good question, and Dave won't answer it. There's lots of other places to put your money beside 529 plan.
Thats right students are consumers
Didn’t get too much of answer about 529. Besides they sound stressed out and talking about the crab. Not helpful.
He didn't answer her question! She asked if I have more in 529 than paying for education, can I use the rest for a property down payment?
The answer is no and yes! You have to pay the tax of that remaining money plus 10% of penalty in order to use it for anything rather than education.
In twenty years college will be free unless you have money available in your name a.k.a. a 529 from your parents. No 529 for my kids. Will sell assets as necessary to cover short fall if they decide to go.
There's penalties if the remainder isn't used for educational purposes Dave, come on now you should know this
What happens if you have way to much in your 529 and you don’t need it all? Isn’t it your money regardless?
What if kid decides to join the military
Where do you recommend starting a 529? Like a bank or somewhere else?