Tax
break. 529 plans
allow tax-free savings
for college. It's an
easy way to put something
away for college.
Options. Frequent choices in investment strategy/risk tolerance. Depending on the state in which you've set up the plan, you will likely have a choice of savings options with a variety of investments and rates of return and risk.
The
assets. Funds
in a 529 may be in the
parents' or student's
name. If owned by a
student, a 529 account
is excluded from the
FAFSA, so it doesn't
count against the student
in aid calculations,
thanks to provisions
in a new law passed
in February 2006.
Higher potential return. Because this is an investment, you have strategies and options that will offer a larger potential payoff.
Not
liquid. If you
take the money out for
anything other than
college, you will pay
10 percent of the interest
you've earned, plus
any applicable taxes.
Principal not protected. Since this is an investment, the principal is not guaranteed.
No guarantees. As with many investments, the rate of return depends on the performance of your investments.
Fees.
Depending on the plan
you choose and the setup,
there could be transaction
fees and management
fees. Shop, ask questions
and read the fine print.
Penalties.
There is no guarantee
your child will attend
college. But if they
don't use the money
for tuition, you will
lose 10 percent of the
income as a penalty
and play taxes on the
income.
They're great for anyone with kids, says Mark Oleson, director of the Office of Financial Success at the University of Missouri at Columbia. Think of it as the IRA for your child's college tuition.
"It's
nice for someone who has
a little, and it's nice
for someone who has a lot,"
Oleson says.
And
it doesn't count against
your child's assets when
he or she applies for financial
aid, thanks to provisions
in a new law passed in February
2006.
Technically, as with a lot of investments, the principal is not protected. But with many state plan options, you can elect to make your investments as conservative or aggressive as you want.
If
one child elects not to
go to college, you can use
it for another. And if none
of them go, you can take
the money, but the income
is subject to a 10 percent
penalty and taxes, says
Barry Picker, partner in
Picker, Weinberg & Auerbach
CPAs.
While
that seems like a lot, it
may be more money than you'd
set aside if you didn't
have the plan, says Oleson.
Trying
to figure out which options
best match your savings
strategy? Here are several
key points to compare and
contrast at a glance.
