A 529 College Saving Plan Might Not Be For You
Saving For College? . . . you do have choices!
If you express your interest in a collage savings plan your financial advisor is likely to give you all the details on a 529 plan. This is of course the most traditional collage savings plan. However, before you buy in you need to be aware that this is not the only method you can use to save for college while reaping the tax benefits.
What are the problems with 529’s?
The biggest problem that is taking place with 529 plans is the losses they are incurring along with the rest of the stock market. For instance, if you put $10,000.00 in a 529 last year your child would have 40% less for his or her college tuition.
For parents of children who range in the ages of 10 – 18, there may not be enough time to recover the losses prior to their enrollment in college. Most analysts are suggesting that this economic downturn could last as long as 5 – 8 years.
This along side of other problematic issues such as you only escape taxes on the growth of the account (not the contribution), you can lose other potential state assisted financial aid, and if you buy the plan through a broker you will be paying fees across 3 layers.
So what are some alternatives to a 529 plan?
With the economy in shambles, many parents would have been better off hiding their money in glass jars buried deep in the back yard.
- If your children are close to entering into collage, are you better off opening a high yield money market account or buying a CD that matches their enrolment date.
- If you have not fully funded your own retirement, then do that first. Always pay yourself before you pay your kids!
- If you have a low income and you are relatively sure your child can qualify for financial aid, then keep any college savings in 100 dollar bills and don’t tell the government.
- If you can, fund a Roth IRA, both the contribution and gains are shielded from taxes.
Think before you invest!
Like any investment product, you have to use your head to weigh the pros and cons. You can’t let a financial advisor sell you a 529 collage savings plan, unless you fully understand the risk and reward benefits thoroughly.