By Jen Lynch
In a recent Wall Street Journal article, the website savingforcollege.com was suggested for tips and advice on financial planning. The article discussed 529 plans, and how some states are handling financial issues concerning them.
A 529 Plan is an savings plan usually offered by a state, and helps families set aside funds for future college expenses. There are two types of 529's, the Prepaid Plan and the Savings Plan. Educational institutions are only able to offer the 529 Prepaid Plan, while the state can offer both. Every state has a 529 plan, but they differ in features and benefits. You can however, invest in another state's plan, and send your child to a different state completely, so you're not limited to only your state residence or the location of the educational institution. To give you a better understanding of how a 529 plan works, I've included the Top 7 Benefits that savingforcollege.com mentions;
1. Federal Tax Benefits. The plan is federally tax-free!
2. State Tax Benefits. Depending on the state, you could receive additional breaks.
3. Donor (you) have full control of the account. You manage your money, no questions asked!
4. Low Maintenance. Once you invest, you sit back and relax.
5. Simplified Tax Reporting. You only fill out one form in the year you take out money.
6. Flexibility. You can switch over to another state's plan as frequently as you'd like.
7. Substantial Deposits Allowed. There is no age or income limit, you can use it to go back to school!
So there are clearly a lot of benefits to investing in a 529 plan, but in today's economy, many people aren't getting the necessary funds out of these plans they expected to. Now students and parents must rely more heavily on loans to cover college expenses, and the grim outlook of even finding a job after graduation to repay the loans is daunting. With almost 1.9 million college graduates unemployed, according to the Bureau of Labor Statistics, the probability of being able to repay any borrowed funds isn't too high. Even at recent job fairs, the majority of companies openly say that they aren't hiring, just taking applications for future employment consideration.
The public feels that the 529 plans overall lack any proper risk management and that the people managing the money are incapable of such a task, hence the huge losses recently incurred. Some suggest to create a "federal" 529 plan, much like how we have a federal IRA, not just individual state plans. As more people feel the pinch of the stock market and their college investment plans, it will be interesting to see what changes the government will make to avoid even more public distrust in government savings plans and money management.
Wall Street Journal Article
Saving For College: 529