The faster you can start saving for college, the better! We know this can be hard to do when your child is only in preschool, but things go by much faster than people realize. By opening a college savings account, you can get into the habit of saving for a higher education.
529 plans are a popular savings tool for educational expenses, but they’re not your only option. Whole life insurance in New Jersey can also be a great savings vehicle. While there is nothing wrong with 529 plans, we want you to be informed on the limitations. Here are four of the biggest drawbacks to 529 college saving plans.
1. Investment options can be limited.
529 plans allow you to invest in a number of different assets such as stock funds, bond funds and FDIC-protected money market accounts. However, they vary based on each individual state, which means your state may not have attractive investment opportunities. Some people don’t mind the limited investment choices, but others prefer to pick their own investments.
2. Penalties are issued for non-educational expenses.
There are strict rules on 529 plans - you cannot use them for just anything. If you do use the money for something non-educational, you’ll owe taxes on the investment gains and have to pay a 10 percent penalty rate. Qualified educational expenses are generous, thankfully, and include tuition and fees, room and board, textbooks and transportation to school.
3. Need-based aid may be reduced.
Another caveat to be aware of is that 529s count against your federal aid. This happens because 529 assets are included in your overall financial picture. The best way to avoid a 529 plan from hurting your chances for financial aid is to move the account into a family member’s name. If your child owns the account, they can take a 20 percent hit!
4. Contributions and fees are high.
Fees can quickly get out of hand with 529 plans. The last thing you want is to find out your savings are actually going to the financial institution or investment manager. Direct-sold 529 plans are cheaper than advisor-sold 529 plans, but expenses vary among portfolios. Also, some plans require a minimum contribution every month, which could be beyond your family’s reach.
Evaluate Alternatives to 529 Plans
Leonard Financial Solutions can help you find the best way to save for college. We have a number of 529 alternatives to look into such as trust funds, custodial accounts and permanent life insurance. Our goal is to educate our clients so they can choose the best option for their needs. Contact our financial experts to learn more about the alternatives to 529 college savings plans.
529 plans are a popular savings tool for educational expenses, but they’re not your only option. Whole life insurance in New Jersey can also be a great savings vehicle. While there is nothing wrong with 529 plans, we want you to be informed on the limitations. Here are four of the biggest drawbacks to 529 college saving plans.
1. Investment options can be limited.
529 plans allow you to invest in a number of different assets such as stock funds, bond funds and FDIC-protected money market accounts. However, they vary based on each individual state, which means your state may not have attractive investment opportunities. Some people don’t mind the limited investment choices, but others prefer to pick their own investments.
2. Penalties are issued for non-educational expenses.
There are strict rules on 529 plans - you cannot use them for just anything. If you do use the money for something non-educational, you’ll owe taxes on the investment gains and have to pay a 10 percent penalty rate. Qualified educational expenses are generous, thankfully, and include tuition and fees, room and board, textbooks and transportation to school.
3. Need-based aid may be reduced.
Another caveat to be aware of is that 529s count against your federal aid. This happens because 529 assets are included in your overall financial picture. The best way to avoid a 529 plan from hurting your chances for financial aid is to move the account into a family member’s name. If your child owns the account, they can take a 20 percent hit!
4. Contributions and fees are high.
Fees can quickly get out of hand with 529 plans. The last thing you want is to find out your savings are actually going to the financial institution or investment manager. Direct-sold 529 plans are cheaper than advisor-sold 529 plans, but expenses vary among portfolios. Also, some plans require a minimum contribution every month, which could be beyond your family’s reach.
Evaluate Alternatives to 529 Plans
Leonard Financial Solutions can help you find the best way to save for college. We have a number of 529 alternatives to look into such as trust funds, custodial accounts and permanent life insurance. Our goal is to educate our clients so they can choose the best option for their needs. Contact our financial experts to learn more about the alternatives to 529 college savings plans.
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