Myths About 529 College Savings Plans

Did you get a 529 college savings plan for your child or relative? Considering getting one? There are a lot of myths surrounding this excellent way of financing education that need to be debunked, including these five.

Parents playing in moving boxes with their daughter. They're thinking about 529 savings plans for her future education.

Myth: If My Child Doesn’t Go to College, the Money Will Be Lost

One concern many parents and relatives have when it comes to 529 college savings plans is, “What if they don’t go to college?” The good thing is – you won’t lose all the money you put in. Those who own the account can take out a non-qualified withdrawal but with a 10% withdrawal penalty.

Account-holders can also change the beneficiary to another qualifying family member such as a sibling, another child, or spouse.

Myth: If My Child Gets a Full Ride, the Money Will Be Lost

Account-holders are also worried about full-ride scholarships, whether it’s academic or athletic. While a scholarship is a great thing and can save parents and students a ton of money, 529 college savings plan holders may be concerned about the money they put into the account.

As mentioned in the previous myth, you can take out the money at any time with the 10% penalty. However, there’s a plus if your child gets a full-ride: you can actually avoid that penalty up to the amount of the scholarship.

Myth: 529 College Savings Plans Are Only for Children

Did you know there are actually no age requirements for the beneficiary of a 529 college savings plan? Of course, the younger a student is, the more time the investment has to grow, but even if you start a plan late when your child is in high school or start it for an adult in your life, there are still plenty of benefits to this financial option for college.

Myth: You’re Restricted to the State You Opened the Account In

What if your child wants to attend college in another state? That’s okay – they can still use the 529 college savings plan! In fact, some trade schools and even international colleges will accept the plan as well.

And you don’t even have to choose the one in your home state. You can opt for another state’s 529 savings plan, but there may be tax breaks if you go with your own state’s offer.

Myth: It Will Hurt Financial Aid Packages

Another concern 529 college saving plan account holders have is how it will impact financial aid packages. Many believe it will actually reduce the chances of getting any. However, it will only reduce a package by up to 5.64% of the plan’s value after the roughly $10,000 that falls under the Asset Protection Allowance.

It’s normal to be worried about your large investment when it comes to a 529 college savings plan and you should absolutely do your research before opening an account. However, parents, students, and other account holders can get peace of mind with these 5 debunked myths.

 

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