The 529 College Savings Plan
The 529 Hidden Secrets
For those who don't know the 529 plan is a college savings plan most parents get for their kids when they are at a very young age. It is in fact a type of insurance that is specifically for college savings. You get to pick an amount of how much you want to have covered. For example for this specific article we will be using a $100,000 plan. This means by the time your child is ready to go to college you will have $100,000 ready to take out and pay for their education. Sounds pretty good doesn't it? Well here are some insider secrets I bet you didn't know about the plan.
Let's work with a few scenarios to show you how this plan works.
Our first story is about Ron who is a senior in high school. He just got an acceptance letter from NYU and is ready to pack his things and head out. His mom heads to the government office to withdraw the $100,000 she saved up through the 529 plan. When she gets there she is told that because the plan was made in Texas she can not use it for an out of state University. That's right she does not get her money back it has been locked. She now has to pay out of pocket and count on some loans and grants. It is a state based plan and there for is not applicable nationally or internationally.
Our second story is about Alice who is a very clever Junior in High School. She managed to get herself $200,000 worth of scholarships. Sounds great doesn't it? $100,000 from the 529 plus $200,000 in scholarships-wrong. You see when her mom went to the office to withdraw her scholarship money for her education it showed the 529 plan in the system. So instead of getting $100,000 from the 529 and $200,000 from the scholarships, she gets the $100,000 from the 529 which is deducted from her scholarship and only gets $100,000 out of her scholarship. Now remember how the 529 is in state only? Well so is the scholarship so if she decides to go to the University of Alberta in Canada she looses all of it and ends up paying out of pocket.
Now because this plan is a little complicated how about we break it down to yes and no questions.
Does getting a 529 sound like a good plan when introduced?
Yes, it does because they don't tell you the rules
My child wants to go to an in state university will I get the money?
Yes, you will
My child got a scholarship will I still get both?
Yes, you will get both BUT the amount of your 529 plan will be deducted from your scholarship
I got my child a 529 plan but they decided not to go to college do I get to take out my money?
No, that money now belongs to the government- forget you ever had it
My child wants to go to an out of country university do I get to use the 529?
No, that money is gone you can only use it in state
My child wants to go to California to study so I can still use the 529 right?
No, it is a state plan you can only use it in state
Now you may be thinking "O.k. the 529 plan is a bad idea I get it but what other option do I have?" The plan I have found to be the most favorable in this case is the FFIUL plan which is a Universal Life Insurance and it is best to get it under your child's name when they are newborn or while they are still at a very young age. I will post more information on that plan in my next post. So keep looking out for that post because I will also tell you how to find an insurance agent that will be right for you.