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Using Your 529 Plan Tips
- Communicate and avoid double trouble. If multiple 529 accounts exist for the same beneficiary make sure your don’t take multiple distributions for the same expense or you may be stuck with a taxable event.
- Make sure educational expenses are qualified. Lines can sometimes blur. Computer equipment is a great example.
- Distributions can be made to three parties: 1.) Account Owner, 2.) Student (Beneficiary), and 3.) School. Be sure to know how your distributions could affect your income taxes and financial aid packages.
- Don’t wait till the last minute.Spring semester payments can cause a problem because many folks take a 529 distribution in a year different from the year the qualified expense was billed.
- These plans are treated as an asset of the account owner (vs. the student) when calculating the expected family contribution toward college costs, so they have a comparatively low impact on financial aid eligibility.That's why it's important for parents or grandparents to maintain ownership of the account.
Costly College Planning Mistakes
- Not discussing who is responsible. Your child’s expectations about your contributions may not match reality.
- Stashing funds in a traditional savings account. Even the best interest rates tend to be 1% or less. Put your money to work for you.
- Ignoring inflation. Nationally from 1985-2013, college tuition rose 538%, compared to the Consumer Price Index at just 121% and medical expenses at 286%.
- Compromising your nest egg. It’s easy to have an emotional reaction, but don’t forget you can’t take a loan for your retirement, so don’t compromise your savings. Loans for school are not a bad thing. You just don’t want to be financing your entire education bill. It’s about finding a healthy balance.Remember, your children have a better chance of fending for themselves financially because they have time on their side.
- Delaying the process.Remember, the power of compounding interest will be in your favor if you start early and invest wisely. Don’t put your child’s education at risk by hoping for scholarships, an inheritance or risky investment.
- Student loan borrowers don’t know what they are getting into. This is often the first major financial transaction and students don’t understand compounding interest and can’t afford their loan payments.Student loan debt has the highest delinquency rate at 11.5%.
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