529 Education Savings Plan | 05.16.08

Posted in Financial Aid By Student Loan Network Staff

Savings plant

I speak to parents every day who call me trying to figure out how they’re going to pay for college for their kids. It’s a heavy cross to bear. “Should we take a home equity line? What about the Parent Plus loan? Do you think I should just co-sign for a private student loan for my child and keep the loan in their name?” These are the most common questions I help them work through.

From a student’s perspective they’re just trying to get to school and are less concerned with the financial details. They don’t fully understand the financial ramifications that go along with the cost of education. Whether it’s $5,000 or $50,000 it doesn’t really matter to them; at least not while they’re in school. These serve as arbitrary numbers. But those numbers become their foe when it’s payback time.

The purpose of this blog is to introduce a 529 savings plan to you. This education savings plan is most useful to those parents having students several years away from college.

Here is a quick cliff note style overview for you.

- Every state has at least one 529 plan available.

- Two general types of 529 plans exist: prepaid programs and savings programs (prepaid tuition plans allow you to lock in future tuition rates at current prices while savings plan do not offer that same guarantee).

- Your investment grows tax-deferred, and distributions of the funds come out federally tax-free when you are paying for college.

- You are in control of the funds, and can even change the name of the recipient to another child or even yourself.

- 529 plans are viewed as a parental asset which is only assessed a maximum of 5.64% in determining a students Expected Family Contribution (EFC) on their FAFSA, opposed to a whopping 20% on non-529 assets that students hold.

As you can see 529 plans have great benefits and are a terrific way to save for your child’s college. I want you to save now and pay less later.  If you plant it – it will grow.

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3 Responses to “529 Education Savings Plan”

  1. Pat says on January 8, 2009 at 12:30 pm:

    Can any student loans, including private student loans, be paid back with funds from 529 accounts? Our 529 has lost so much recently that we would like to wait until it comes back before withdrawing funds.

    Reply To This Comment
    • David Bonvie says on January 23, 2009 at 9:07 am:

      529 funds are designed to go directly to the University. Qualified withdrawals are those used to pay for the “qualified higher education expenses” of the student-beneficiary. To be considered a qualified withdrawal, the institution at which the student is enrolled must qualify as an “eligible educational institution,” and the expenses the funds are being used for meet the Internal Revenue Service (IRS) criteria as “qualified higher education expenses.”

      Assuming the school was a qualified one I would check with your 529 Plan provider to see if they charge any penalties for withdrawals that are not going directly to the school.

      Reply To This Comment
  2. Karleen says on June 5, 2008 at 8:04 am:

    I started a 529 account for my daughter just a few years ago…she is headed to college this fall. Would you suggest keeping the money in the account over the next few years, then use to help pay off some of the student loans, or put towards initial costs now. Just a small amount of $2000 is in the accout now, her college costs are clse to 40k per year…she has some scholarships that have brought it down to about 10k per year. Any suggestions would be greatly appreciated.

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