Saving

The 529 Upside

Chris O'Shea
Apr. 12, 2018
2 min read

The benefits of using a 529 plan to save for college


The 529 Plan — named after the section of the Internal Revenue Code that lays out the parameters for how these plans work — is a tax-efficient way to save for one of the biggest expenses of your life: College for your kids. Yet, according to a report from Sallie Mae, fewer people are using 529s as part of their funding strategy. The company found that in 2016, 17 percent of families used 529s to pay for some or all of college expenses. That number decreased to just 13 percent last year. Part of the reason for the decline could be a lack of understanding, so to help clear some things up, here’s the 411 on 529s.

  • You can invest as much or as little as you want. On one hand, if you want to put a giant amount of money into a 529 plan, you can (there is a limit on tax deductibility). If you want to invest a tiny amount, you can. Many states allow for low investment minimums, often as small as $25. And if you use the money for education-related expenses, it can be withdrawn tax-free.
  • It can be transferred. Let’s say you set up a 529 for one kid, who suddenly decides to bypass college altogether. You may be disappointed — but the good news is that you can transfer the 529 to another, younger sibling (or member of the family) who has their eyes set on college.
  • It won’t necessarily hurt their financial aid opportunities. If your kid needs to apply for financial aid, it’s best to not have a lot of assets in their name. However, money in a parental 529 is counted as assets of the parent, which aren’t weighed as heavily as other assets. To figure out how much of a 529 plan would be counted, try an online financial aid calculator. (Note: This is not true of grandparent owned plans. If you have other relatives opening 529s for your kids, you may not want to use them until the later years of college.)
  • You don’t need to be the parent. Pretty much anyone can set up a 529 plan to help someone save for college. You don’t have to be related at all. Keep in mind that the person who opens it retains all control of it, including who receives the money and how it is invested.

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    Chris O'Shea

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