Why 529 Plans Aren’t Working for Families with College-bound Kids | College Made Simple
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As the debate rages in Washington over the national debt… unemployment… healthcare… the war… and a whole laundry list of other hot button issues, there’s one more thing the government is getting wrong…
The 529 plan.
In fact, Washington has just found yet another way to swipe a little bit of your college savings away from you.
Keep reading to find out how you can protect yourself…
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Why (Most) 529 Plans Aren’t Working for College-bound Families
529 college savings plans are changing. And those changes may end up costing you more than before.
We’ve documented the advantages of 529’s here. Just to recap, they offer:
- Potential tax breaks for contributions to certain states’ plans.
- Contributions allowed by anyone, but complete control resting with the owner of the plan, not the beneficiary.
- Tax-free withdrawals if used for education purposes.
Now those tax-free “education purposes” include things like tuition, room and board and textbooks, naturally. But it also includes items such as PC’s, iPads and printers… which are all integral parts of a student’s college curriculum.
Until now.
Under new 2011 tax legislation, those electronic items no longer fall under the “education purposes” category unless they’re specifically required by the school. If they’re not, then parents will be forced to pay taxes and penalties if they withdraw money from their 529 plan to purchase them.
It’s just another reason why it’s not smart to place your college savings into a government-controlled plan. As Washington haggles over ways to close the debt and bring more money into the coffers, things like educational savings could end up paying the price.
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Will You Get a “Fair” Financial Aid Award?
Well, the truth is — Most families never find out! They’ll simply take what’s offered. And many will pay more for college than they need to… sometimes up to tens of thousands of dollars more.
That’s one of the reasons we developed our Free College Funding Analysis.
One phone call with one of our education consultants can quickly identify a family’s college funding situation… and identify any number of ways that can help them.
Click here to learn more about our Free College Funding Analysis.
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Today it’s computers being taken off the tax exempt list… but next year will it be books? Meals? Maybe housing? Will there end up being anything outside of the standard tuition cost that you can pay for tax-free out of a 529?
Sure that’s just speculation, but this is where it all starts. When you’re saving for your child’s academic future (and with the way the cost of that future is skyrocketing), every little bit counts. Paying taxes on a new laptop and printer as well as a penalty for withdrawing your OWN money hardly seems ideal.
Not to mention the fact that 529 plans are typically counted against your Expected Family Contribution by the government and the colleges when evaluating your financial aid application.
In fact, for every dollar you keep in a 529 account, 5.6 cents can be subtracted from your potential financial aid package. And it could be far worse than that… if the school you’re considering decides to count your 529 plan withdrawals as a ‘resource of the student’!
Believe me, while on the surface 529 plans appear to be a smart investment in your child’s college education, the government is slowly but surely turning that deal more and more to their advantage.
And at a time when money is scarce and the halls of the Congress and Senate are buzzing about ways to scrap up every dollar possible, more and more of that money could come out of plans like 529’s.
As we’ve mentioned here several times on College Made Simple, it’s often times a smart financial decision to place your hard-earned college savings dollars into assets that provide safety, certainty and liquidity – without the ups and down of the stock market… and without the colleges and government penalizing you (when doling out financial aid) for having saved the money in the first place!
So before you start pouring your money into a 529 plan, speak to an experienced College Funding Advisor who can offer you options that will protect, preserve and ultimately make your college savings go further – without having to stomach the stock market… and without being penalized for having prudently saved money to this point.
In short, it simply can’t hurt to at least know what all of your options are BEFORE your child goes through the college admissions and financial aid processes.
You’re doing the right thing by saving… now just make sure you’re doing it the right way.
To your family’s successful college planning,
Scott Weingold
Co-founder, College Planning Network LLC
Publisher, College Made Simple – The Free Educational Resource of College Planning Network, LLC
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