sign in

Students Ask, College Counselors Answer

Unigo Expert Network Column
 

See All Columns

This week's question from Jared I., New Orleans, LA asks:

What is a 529-Plan and how do you set one up?

Consider All of Your Options Before Leaping Into a 529 Plan

Don Fraser, Jr. | Director of Education and Training
The rising cost of college is a scary prospect for the overwhelming majority of today’s college students and families, particularly if you are considering attending a 4-year public or private college where the average tuition and fees are approximately $6,300 and $22, 000, respectively. One of the many ways in which families can save money is through a 529 plan that allows (in most cases) tax-free financial contributions to the plan with the goal of using the funds to pay their child’s college tuition. 529 plans are available in every state as well as in Washington, D.C. and can vary considerably (e.g., how you choose to contribute, the kinds of investments you make, etc.), so see what is available to you and decide what works best for your family. It is important to shop around, though, and if you are not familiar with making financial investments, then you should talk to a reputable professional who could help you make sense of the sea of options. Some colleges even offer their own versions of a 529 plan, so if you have a particular college in mind, you could check to see if they participate. It’s never too early or too late to consider a 529 plan.

Every State Offers Some Kind of College Savings Plan

John Carpenter | Founder
529s are great plans to help families save money for college, and they carry a number of different tax benefits, depending on the state you live in. They are especially good for parents because parents have total control over when to take out the money and whom to give it to. Students can open their own 529s, but the benefits are slightly offset by the way your financial aid package is calculated. Remember that student assets are always used at a higher rate than parent assets when it comes to figuring out financial aid. Another thing to know is that to get the best benefit of a 529 plan, it should be opened when you're young--even a baby! Plans that don't begin to accumulate before your senior year won't be that helpful to your overall financial situation. To open one, contact a financial advisor or see someone at your bank. Then talk to a financial aid officer at any of the colleges you're considering to see exactly how your plan will affect you at that particular school.

It’s for families to save for future college costs.

Barb Fisher | Recruiter, Marketing Director & Foundation Liason
It’s really cool you are asking about a 529 Plan. Saving for future college costs is a great way to ensure money will be there when it’s needed. With college costs increasing every year you might want to consider a community college like ours (Rainy River Community College in International Falls, MN) where tuition is still affordable and your student can get transferrable credits equivalent to the first two years of any four-year degree. Saving for college has many variables. Very helpful information can be found at: http://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php. Good luck with your plan and remember to check out RRCC at www.rrcc.mnscu.edu. We’d love to have your student on our campus!

Saving for college is a great thing… and the best way to preserve options!

Nancy Meislahn | Dean of Admission & Financial Aid
Anyone can set up a 529 plan and name anyone as a beneficiary. www.savingforcollege.com is a reliable place to compare the different state plans or look for more information from your state. You might get a better state tax break if you invest in your own state’s plan.

Saving for Future College Expenses: The 529 Plan

Rachel Winston | President
Sometimes, the IRS comes through. Although not a panacea due to fees, penalties, and restrictions, Section 529 of the IRS code is designed to encourage parents to save for their children’s college education free from taxation. Individuals may choose the Pre-paid Tuition Plan or the College Savings Plan. In the pre-paid plan (most that are state-sponsored and guaranteed), parents purchase segments of future tuition. In the College Savings Plan, parents establish an account in the child’s name and invest money at their own risk. Upon matriculation, payments from the account may be used at any college.

Sign up for a 529 and automatic deposits, then relax!

Jolyn Brand | Founder & Director
A 529 is a saving plan for college tuition. Every state now has at least one, but the programs vary by state. The two types of 529 plans are savings plan and prepaid plans. The savings plans works just like a 401k; parents invest a certain amount of contributions and the total will go up or down depending on the performance. The prepaid plan allows parents to pre-pay all or a portion of the college tuition for in-state schools. There are several benefits to a 529 including federal and state tax breaks, low maintenance, and the flexibility to move the investment.

The More You Save, The More Options You Will Have

James Maroney | Director
529 actually refers to the IRS tax code that created tax advantaged college savings plans. These are sponsored by states, but you can invest in any state's college savings plans. There are two basic types: a prepaid tuition plan; and a college savings plan. Most people are referring to a college savings plan when they refer to a 529. While you can invest in any sponsored college savings plan, it is possible that there might be state income tax advantages for utilizing the plan of the state in which you reside. In addition to allowing your money to grow tax free, these plans offer the benefit that if the parents owns the plan, it is assessed at the parent's rate for federal financial aid (a maximum of 5.6%) versus the students rate (20% with no asset protection allowance). If the plan is owned by someone other than the parent, it may not be counted at all for Federal Methodology. As is always the case with financial aid, there are exceptions. Some private schools may consider the money in the 529 plan as a student asset. That being said, it is always better to have money saved than to not have any money at all, because they do not assess it at 100%, while you did save that money 100% for college. As with most things related to college, the earlier you start planning (and saving), the more options you will have in the end.

What You Need To Know About 529 Plans

Jeannie Borin | Founder & President
529 Plans are educational savings plan programs. The maximum allowable annual contribution varies by state. These programs offer a wide range of investment choices, much like 401K plans. Funds, including any and all gains from the investments in these plans, can be withdrawn tax-free, as long as they are used for qualified educational expenses, such as tuition, books, and room and board. Furthermore, contributions are usually deductible on the state tax return of the donor, provided that he or she lives in the state that sponsors the plan receiving the funds. One of the biggest advantages of 529 plans is that the donor retains control of the funds even after the beneficiary reaches the age of majority. 529 Plans levy a 10% early withdrawal penalty for any distributions that are taken out for any reason other than qualified educational expenses.

When saving for college a 529 can be a good thing

Maura Kastberg | Vice President of Client Services
529 savings plans are offered in many states and have distinct benefits to families. Anyone can open a 529 for anyone. (Grandma, aunts or uncles, friends) are all able to open an account and there are no income limits on contributors you can contribute to a 529 no matter how much you earn. The investment in a 529 plan grows tax deferred and is tax free when you take money out of it to use for the beneficiary’s education. 529 plans cover a wide variety of educational expenses including room and board, books, tuition, supplies and other fees. They can also cover graduate school educational expenses. The beneficiary is not required to attend college in the state the 529 was taken out in. The beneficiary can be changed without penalty provided the new beneficiary is a member of the previous beneficiary’s family. For financial aid purposes the 529 investment is considered a parental asset and so is assessed at the lower parental rate of 5.6%. However colleges will sometimes adjust their financial aid package when they are aware of the 529 plan.


TAGS:

Discussion

See All College Counselors

Get Expert Info in your Inbox!





Ask Your Own Question!