Considering a 529 plan?
A 529 plan isn’t for everyone. You may decide you prefer another type of investment account that gives you more control over your portfolio allocations, or maybe you want to open a 529, but not immediately. Here are some questions to consider before taking the plunge.
Do you procrastinate?
It’s easy to postpone opening a college investment plan because it seems too early to start thinking about saving for college. “If you aren’t comfortable with opening a 529 plan yet, start with a savings account,” says Dale Ellis, director of the Arkansas College Savings Plans. “It’s not going to accumulate a lot of interest. But it doesn’t have fees, and there’s no risk of loss of principal.”
What is your level of financial knowledge?
Before seeking help opening a 529 plan from a financial advisor or certified public accountant, parents should make sure they have a basic understanding of 529 plans. This includes learning about fees, investment choices and state tax benefits, says Leonard Wright, a California-based personal financial specialist and certified public accountant.
Will a financial advisor add value?
There are two ways 529 plans are sold: through an advisor or broker or directly by the 529 plan manager — in most cases, the company contracted by the state. Advisor-sold plans tend to have more investment options, and the options are more actively managed than direct-sold plans. Advisor-sold plans are also costlier.
Is this plan is the right choice for your family?
People often make choices based on what friends or co-workers have done or recommend. Families need to figure out why their friends are making certain choices to determine whether they should choose a similar option, Wright says. For instance, a friend might choose a plan because it’s been in the news or because he or she likes making the investment choices, he adds
Will the money in the plan be lost if the child doesn’t go to college?
If the child doesn’t attend college, the money can generally be transferred without a fee to another beneficiary, including the parent. The money can also be withdrawn if no one is able to use the funds, generally with a tax penalty. However, a tax penalty is a lot better than losing 529 plan savings completely.
Do you have to pick your state’s plan?
You don’t have to choose your state plan. However, one reason this misconception exists is that many states that have a state income tax offer a state income tax deduction for 529 plan contributions — only offered to taxpayers who own a plan in that state.
More from U.S. News
How to Decide if a 529 Plan is Right for You
6 Essential Questions to Ask Before Choosing a 529 Plan
Explore Unusual 529 Plan Options
How to Decide if a 529 Plan is Right for You originally appeared on usnews.com
