Are 529 Plans a Good Idea in this Market?

A 529 Plan is a way to save money for college that can give you some tax breaks. Many people have been worried about investing with the recent market fluctuations. If you already have a 529 plan, you may be worried about your balance dropping with the market. If you are in the process of saving, you may take this time to decide, under the advice of a financial advisor, if you are more comfortable investing in more stable entities or if you are okay with the fluctuations in the long run.
Some people may have been advised to invest in risky stocks because they had a long time to save for college. This is not necessarily bad advice, if you have a high risk tolerance. If it makes you squeamish to see your balance rise and drop dramatically, you may choose to invest in something a little more stable, such as a mutual fund invested in stocks and bonds. This is the area of investing that a lot of long-term investors end up in.
Not many people are willing to watch their investment plummet with the market. Some may have loved being more daring back before 2000, but maybe not so much now. With over 100% returns, many people were just throwing money into risky investments, with wide blind eyes. You have to look at long term results and understand that these results are achieved by fund managers over time. There may have been some major fluctuations up and down during the years that you are looking at. Mutual funds with stocks and bonds give you some risk so that there is potential for faster growth than a bond fund, but that does not necessarily mean that there will be more growth than a bond fund.
If you are getting closer to needing the money in the 529 plan, then you may want to go even more conservative and stick to mutual funds invested in bonds. Bonds can even be backed by the government. Since the government has taxing power, the chance of government bonds losing money is very slim. These types of funds can be fairly stable.
Bond funds offer dividend payments that can be reinvested into your plan. This may or may not be the best thing for you, depending on your tolerance and also your time frame. Generally speaking, if you have many years to save, then some risk can usually be afforded because you have time to wait out the market lows. The fluctuations can be worth it and sometimes really pay off if you have a stomach for your money constantly rising and falling.
Talk with a financial advisor about assessing your risk tolerance before you decide where to invest your money. The 529 plan is a great way to save money and get some tax breaks. You can even get tax breaks if your plan loses money, deducting the loss of principal from your income. These benefits combined with scholarships, grants, student loans and private student loans can help you get your child through college.

About the Author: Evelyn Saunders, a retired teacher, is the editor for student-loans.net, a provider of student loans and information on how to get private student loans as well as consolidation. For more information, please visit http://www.student-loans.net.

529 Plans and Student Loans

Saving for college is always a good idea. Some people start with a regular savings account through their bank. Others choose to invest in mutual funds or other security. There are some state sponsored plans that can help you get the best tax benefit for your money.
These state plans are referred to as qualified tuition plans, 529 plans or 529 programs. The money you put in is actually invested, so there is some risk. This is much like a 401K plan where your contributions are invested. Every state in the US offers at least one 529 plan. If you invest in a Texas 529 plan, live in Alabama and your child chooses to go to school in New York, you can still use that Texas sponsored 529, as long as the school your child is attending qualifies. Basically, the 529 savings plan has to be used at an accredited school. Check online for eligible institutions before you choose a school.
There is also a prepaid 529 plan that works a little differently. This program allows you to prepay for college tuition in-state. If your child decides to go to school out of state, then all is not totally lost. You can transfer your prepaid 529 to another state, but depending on the state, you could end up losing part of your money.
Colleges can offer their own 529 plans. If you choose to prepay for a specific institution, make sure that you know what terms you are agreeing to. There may be special restrictions about transferring to another school.
The best thing about 529 plans is the tax breaks. State tax breaks can vary from state to state, so check with your state to get the facts. Many states offer a state tax deduction for contributions that you make to the plan. You will not get a federal tax break on the contributions, but your earnings will grow tax-deferred.
You remain in complete control of the 529 account. The money is not in the child’s name and you can take it out whenever you wish. If you use the distributions to pay for college tuition, the distributions are federally tax-free. Your state may also let you have tax-free withdrawals, but this depends on the state. If you want to take the money out and use it for something other than college, then the distribution will be a taxable event, federally and from your state. Additionally you will be charged a 10% penalty for withdrawing for something other than school.
Most people do not end up saving near enough for college and start looking for other forms of financial aid. There are a lot of special benefits and terms for college students who need to take out student loans or private student loans. Do your research and college could be easier to pay for than you planned.

About the Author: Evelyn Saunders, a retired teacher, is the editor for student-loans.net, a provider of student loans and information on how to get private student loans as well as consolidation. For more information, please visit http://www.student-loans.net.