529 College Savings Plans: Part III

The first two parts of this series looked at basic plan information and the benefits of participating in 529 College Savings Plans. The final installment focuses on factors to consider before investing in such plans.

Click HERE to read Part I

Click HERE to read Part II

Is investing in a 529 plan right for me?

Before you start saving specifically for college, you should consider your overall financial situation. You may have competing financial goals like buying a home, saving for retirement, or paying off credit cards. Although you can work toward multiple goals simultaneously, you should make sure each savings plan fits your budget before committing to specific dollar amounts.

The most important consideration with 529 plans is that you may face penalties or lose benefits if you do not use the money for higher education expenses. However, if you decide that saving specifically for college is right for you, then the next step is to determine whether investing in a 529 plan is your best college saving option.

Keep in mind that various college saving options have advantages and disadvantages, and may impact your eligibility for financial aid differently. So, you should consider each option carefully. If you need help determining which options work best for your circumstances, you should consult with your financial professional or tax advisor for their expert opinion.

What questions should I ask before I invest in a 529 plan?

Knowing the answers to these basic questions may help you decide which 529 plan is best for you.

• Is the plan available directly from my state or the plan sponsor?
• What fees are charged by the plan? Who will I pay fees to? How much of my investment goes to compensating my broker or investment firm? Does the plan ever waive or reduce certain fees? Under what circumstances?
• What are the plan’s withdrawal restrictions? What types of college expenses are covered by the plan? Which colleges and universities participate in the plan?
• What types of investment options are offered by the plan?
• Does the plan offer special benefits for state residents? Am I better off investing in my state’s plan or another plan? Does my state’s plan offer other benefits aside from tax advantages? If my state’s plan charges higher fees than another state’s plan, do the tax advantages or other benefits outweigh the benefit of investing in another state’s less expensive plan?
• What limitations apply to the plan? When can an account holder make changes such as switching investments or beneficiaries, or transferring ownership of the account to another account holder?
• Who is the program manager? How has the plan performed in the past?

Where can I find more information?

Plan Disclosure Statements: You can find out more about a particular 529 plan by reading its offering circular. Often called a “disclosure statement” or “program description,” the offering circular will have detailed information about investment options, tax benefits and consequences, fees and expenses, financial aid, limitations, risks, and other specific information about the particular plan. Most 529 plans post their offering circulars on publicly available websites. The National Association of State Treasurers created the College Savings Plan Network, which provides links to most 529 plan websites.

Underlying Mutual Funds: You may want to find out more about the mutual funds included in a college savings plan. Additional information about mutual funds is available in their prospectus,’ and semiannual and annual reports. Offering circulars for college savings plans often indicate how you can obtain these documents from the plan manager at no cost.

Broker-Dealer Public Disclosure Website: You can find out more about a broker online. This website allows you to search for any disciplinary actions against your broker, as well as information about his or her professional background and licensing status.

Other Online Resources: You can learn more about 529 plans and other college saving options on FINRA’s Saving for Education website. The website contains links to other helpful sites, including the College Savings Plan Network (found at collegesavings.org) and the Internal Revenue Service’s Publication 970 (Tax Benefits for Higher Education). FINRA’s investor alert on 529 plans also provides valuable information for investors.

Hopefully, this three-part series allows you to evaluate whether 529 College Savings Plans are right for you. If you need more help to determine how to best budget for college or other savings, call us at 888.577.2227 for a free and confidential counseling session. We’re here to help you make your dreams come true!

Author Barb Miller is a Certified Credit Counselor at LSS Financial Counseling. She specializes in Bankruptcy Education.