Fact or Fiction? The Truth about 529 Plans
There are a number of myths floating around about saving for college and whether or not it is a wise choice for families. To help celebrate 529 Day, we wanted to clear up some of the myths about 529 plans, and thought this information from the College Savings Plan Network would be helpful!
Test your knowledge with the statements in bold below – is each one fact or fiction? We've provided the answers and an explanation of why each statement is true or false.
- It's easy to open a 529 plan.
True. Most 529 plans allow you to open an account online, so even busy families can start saving for higher education. Get started with opening a Massachusetts U.Fund 529 College Investing Plan now.
- It's not expensive to open and maintain a 529 plan.
True. Most 529 plans have low minimums. The MEFA U.Fund, for example, has no minimum.
- You can only use 529 plans to pay for tuition.
False. You can use your 529 account assets for many higher education expenses, including tuition, fees, books, supplies, and full-time room and board costs.
- A 529 plan can only be used at schools in your home state.
False. You can use your 529 assets at any eligible college/university around the country. That includes 2- and 4-year colleges and graduate schools!
- My child is in high school – it's too late to start a 529 plan now!
False. It's never too late to start saving for college. No matter how old your child is, you can always take advantage of the tax benefits of a 529 plan. And the more you're able to save now, the less you will have to borrow (and pay back, with interest, later).
- Anyone can open a 529 Plan – not just a parent.
True. Parents, grandparents, aunts, uncles, friends – almost anyone can be an account owner. There are only three requirements to opening a 529 plan. You must:
- be a U.S. citizen or resident alien
- have a social security number or Tax Identification number, and
- have a permanent U.S. address (not a P.O. box)
- There is no maximum age for a 529 plan.
True. If you're considering career training, or an advanced degree, you can open an account for yourself. As long as your school is eligible, you can use your 529 plan assets, even if you're not attending school full time.
- If the child doesn't go to college, you lose your money.
False. If the child does not go to college, the 529 plan account owner can change the beneficiary to another eligible "member of the family" with no tax penalty. If there is no alternative beneficiary, the account owner can still withdraw the funds. The earnings are then subject to federal income tax and a 10% penalty.
- I make too much money to save in a 529 plan.
False. There are no income limitations for a 529 plan. In fact, as part of the tax advantages offered by a 529 plan, account owners can contribute up to $15,000 in a single year without incurring a gift tax.
- You have to make a lot of investment decisions.
False. Whether you prefer a one-step or do-it-yourself strategy, 529 plans generally offer several investment types that can meet your needs. The one-step strategy is a simple, age-based option where the investment becomes more conservative as the beneficiary gets closer to college age. The do-it-yourself strategy offers a range of individual portfolios that allow you to create your own investment plan.
How did you do? Did you learn a thing or two about saving for college and 529 plans? We hope so! If you'd like to learn more about the U.Fund 529 College Investing Plan, visit our U.Fund College Investing Plan page.