Most families are not taking advantage of 529 plans for college savings

by Grace

Only 29% of families choose 529 plans for college savings.

20140422.COCChoiceOfCollegeSavingVehicles


A 529 plan is the “best college savings vehicle”.

… By far the most popular college savings vehicle is the general savings account (nearly half of families with children under 18 use this to save for college). But Foss says that the best college savings vehicle is the 529 plan (less than one-third of parents are using this to save). “There aren’t many reasons not to use it,” she says. One of the major reasons these plans are better than general savings accounts is that your investments in 529 plans grow tax-deferred and distributions come out tax-free on the federal level; plus 34 states and Washington, D.C. offer state income-tax deductions, so there’s a “double tax advantage” in these cases.

Furthermore, you can transfer the funds in these accounts to another child if one of your kids opts out of school and 529 plans are treated favorably with colleges’ financial aid offices. General savings accounts can’t compete with the benefits of the 529 when it comes to saving for college, Foss says. However, if you do not use the 529 plan for college expenses, you will likely have to pay a 10% penalty and income tax on the earnings when you withdraw the money.

Related: What you may not know about 529 plans (Cost of College)

———

Catey Hill, Parents: “You’re saving for college all wrong”, MarketWatch, April 12, 2014.

Advertisements
Tags:

One Trackback to “Most families are not taking advantage of 529 plans for college savings”

%d bloggers like this: