The Problem with 529 plans

529 plans are College savings plans that allow you to save money for college. 529 plans are financial instruments that are neither good nor bad, but have benefits and drawbacks to consider.

Here are some things to consider before placing your money into a 529 plan.

1. The main benefit is that the growth inside a 529 plan is not taxable if you use the money for college expenses. Note that if you need to access the money for anything other than college, you will pay a 10% penalty plus tax on the growth.
2. Once you put the money into a 529 plan, you are subject to all the rules and penalties of the plan. Since you are locked into these rules, you do not have easy liquidity, use and control of your money.
3. Many 529 plans are subject to market fluctuation. Depending on how you structure your 529 plan, it may be exposed to the market’s volatility and you could lose money. In other words it becomes an investment vehicle and not a savings vehicle. Since no one can predict what the market will be doing at the time you require the money, be ready for the possibility that the money might not be there when you actually need it for college. For those plans that are not subject to the market’s fluctuation, they have very low returns in today’s economic environment.
4. The money that you put into a 529 plan could reduce your ability to get financial aid by increasing your Expected Family Contribution (EFC).
5. The main drawback with a 529 plan is that you cannot put the money back into the tax free growth environment once you have taken it out. Once the money is taken from the account, the account is closed. This means you have interrupted and stopped the miracle of compounding your money.

What’s the next step?

Take the College Strategy Quiz at https://collegeplanningamerica.com/quiz to see what you have.

Consider the possibility of a financial vehicle that has tax free growth and uninterrupted compounding of your money even while you are paying for your kid’s college. The Private Reserve Strategy will give you all of the benefits mentioned on the quiz without ever stopping the compounding of your money from the very first day.
Contact a College Planning America specialist to develop your personalized plan.