Weigh the pros and cons of a 529 total savings plan

The national conversation regarding college, its cost, and paying has primarily focused on loan forgiveness for the past two years. At an event a couple of weeks ago, I had a conversation with a new mom who’s struggling to determine the best approach to college for her young child in the context of everything that’s been going on.

Should she even devote a portion of her limited resources to a goal shrouded in so much uncertainty? What is the “correct” answer?

The correct answer is conservation!

I’ll start there because the most important, and often the most difficult, component of any savings plan is not deciding where to save, the investments you choose or the program you’ll use; She does the hard work – the savings. However, if the current purpose of your savings is Pay for collegea 529 college savings plan worth researching.

For my family, the plans made a lot of sense, but you have to decide if this is right for you. To help with this decision, here are what I consider to be some of the top pros and cons of 529 plans.


Although it is not an exhaustive list, I consider the following to be the main positives of 529 plans:

There are no income tax bills. Any growth within these plans is tax deferred, and if the withdrawals are used for qualified education expenses, they are tax deductible.

Minimal administration required. Most of the 529 plans come with a list of prepackaged investment alternatives to choose from. There are usually fixed allocation plans whereby the mix of investments is rebalanced regularly to maintain a given mix of asset classes. There are age-based plans that start out more aggressively when the child is younger and become more conservative as college admissions time approaches. The parent only needs to select the approach, and the plan managers take care of the rest.

You stay in control. Unlike some other savings strategies for children, 529 plan accounts owned by parents do not become the property of the child. For us, this became a nice feature. Our kids have all finished college, we have money left on one of our 529 plans Thanks, son, for joining our army And let her pay the bill. We now have the flexibility to change beneficiaries to help our grandchildren or even children earn advanced degrees. This ability to change beneficiaries or even withdraw funds at a point in time and use them for other purposes provides peace of mind when you choose to save for college during these uncertain times. Because an “ineligible withdrawal” has the potential to result in taxes and penalties on any winnings withdrawn, it’s usually not recommended to do so – but it’s an action you can take if you want to. Give control!


And in the spirit of the non-exhaustive lists, here are some potential drawbacks to 529 plans:

Focus on education. Unless you’re interested in paying taxes and penalties to the IRS, you won’t use those dollars for anything except for qualified education expenses. A few years ago, high school expenses were added to the list of “eligibles,” but if you have limited resources (right?) and have to choose between your kids’ college or your retirement, I’d choose except for retirement. On that note, Security Act 2.0 includes a provision that could allow you to move 529 of the remaining funds into your children’s Roth IRA — see your tax advisor for details.

Research is still needed. Plans vary in terms of investment offerings, fees, expenses, contribution limits, and even state income tax benefits. Some plans have expense structures designed to be sold – with commission or asset-based compensation – by advisors. So if you decide to take the leap, do your homework and compare plans in these areas.

best approach?

As I mentioned earlier, the best approach to saving for college is to do just that. While choosing college savings programs is something to consider closely, there is no single best solution for all situations. For my family, the positives of a 529 college savings plan outweighed the negatives. For you, this may or may not be the case, but hopefully this information will help you make an informed decision as you plot out your plan to pay for college.

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