A 529 plan could mean less financial aid.
The largest drawback to a 529 plan is that colleges consider it when deciding on financial aid. This means your child could receive less financial aid than you might otherwise need.
Beside this, what happens to money in a 529 plan if not used?
If you truly have no other use for your leftover 529 plan savings, you can always take a non-qualified distribution. Your contributions will never be taxed or penalized, since they were made with after-tax dollars. Any earnings on your investments, however, will be subject to income tax as well as a 10% penalty.
Similarly, what is the average return on a 529 plan?
A 529 plan, on the other hand, might easily return an average of 6% or more each year, helping you accumulate more cash for when those tuition bills start rolling in.
Can a 529 plan lose money?
False. You don’t lose unused money in a 529 plan. The money can still be used for post-secondary education, for another beneficiary who is a qualified family member such as younger siblings, nieces, nephews, or grandchildren, or even for yourself.
What are the disadvantages of 529 plan?
Pros and Cons of 529 Plans
| Advantages | Disadvantages |
|---|---|
| Federal income tax benefits, and sometimes state tax benefits | Must use funds for education |
| Low maintenance | Limitations on state tax benefits |
| High contribution limits | No self-directed investments |
| Flexibility | Fees |
How do I avoid a 529 penalty?
How to avoid paying taxes and penalty on leftover 529 plan funds
- Change the beneficiary to another qualifying family member who is planning go to college.
- Save the funds to pay for the beneficiary’s graduate school.
- Make yourself the beneficiary and further your own education.
- Save the funds for a future grandchild.
Can I buy a computer with 529 funds?
Technology Items – You can use a 529 plan to cover technological needs such as computers, printers, laptops and even internet service. These items must be used by the plan beneficiary while enrolled in college.
How much can you withdraw from 529 per year?
Up to $10,000 annually per student, in aggregate from all 529 plans, can be withdrawn free from federal tax if used for tuition expenses at a public, private or religious elementary, middle, or high school.
Is a 529 plan better than a savings account?
529 plans offer a greater return on investment along with the greater complexity and greater risk of loss. Other important benefits of 529 plans include better financial aid and tax treatment of the savings.
Is it better for a parent or grandparent to own a 529 plan?
How Grandparent 529 Plans Affect Financial Aid. Overall, 529 plans have a minimal effect on financial aid. But, the FAFSA treats parent-owned accounts more favorably. For example, you report 529 plans assets as parent assets, which can only reduce aid eligibility by a maximum 5.64% of the account value.
How much should I put in a 529 plan per month?
What does this mean for you? Choosing a 529 plan could mean a much lower monthly contribution since the money grows over time. With a 529 plan, solid monthly contribution amounts for a child born in 2017 would be about $165 for a public in-state school, $260 for public out-of-state, or $325 for a private university.