College is a huge investment, but it’s also often a necessary step toward a brighter future. Yet, saving for school and related expenses can be a bit of a challenge. The 529 college savings plan can help, but students often misunderstand its purpose and how it really works. This can leave them scrambling or facing unpleasant surprises later on down the road. This myth-busting guide will help you make the most of your own 529.
Myth #1: It Affects Financial Aid Packages
Maybe you started a 529 several years ago, and it’s built up into a nice nest egg. That’s an impressive accomplishment and a rewarding gift to give to a student.
But will it affect their financial aid package? The answer is generally no. However, there’s a small chance it might reduce a financial package by up to 5.64% of the entire plan value. Around $10,000 is protected by the FAFSA’s Asset Protection Allowance.
Myth #2: This Plan Is for College Only
Has your student requested help for lifestyle expenses while away at college? Maybe they have another family member paying for tuition, but they need help with computers, internet service, apprenticeships, and other costs. The 529 plan covers many of these financial expenditures. It’s a great way to ensure students have funds for daily expenses without breaking the bank.
Myth #3: Students Must Stay in State
Many people believe students who leave the state in which their 529 plan was issued automatically lose access to the program. Not so! Students are free to travel anywhere and still maintain the same funding, regardless of whether their adventure is for learning or play. In fact, some trade schools and international colleges also accept 529 college savings plans. Check for restrictions on specific schools.
Myth #4: No College? The Money Is Lost
Maybe your student decided not to go to college. Instead, they’re starting their own business and raising a family right away. Whatever their life direction, they’re going to need money to get off to a good start. Don’t fret about your 529 savings plan. Your student can use it for virtually anything as long as you’re willing to take a 10% penalty hit. You can also change the beneficiary to another qualifying family member if needed.
Myth #5: Student’s Full Ride Will Be Affected
What a great accomplishment it is for a student to get accepted into a university with a full academic or athletic scholarship! Will it affect their 529, though?
Great news: it shouldn’t. While every school has its own regulations, if your student receives a scholarship, the 10% withdrawal penalty on the 529 should waive up to the amount of the scholarship. Keep in mind you will still have to pay taxes on it.
Investing in a child’s education and future is so, so important. While there are risks involved whenever you move money around, a 529 savings plan is one of the more reliable ways to set money aside for future education-related expenses. Why not look into setting up one for a student you love today?