| It’s all very good to begin with. A 529 plan | | | | Further to this little problem, there is an added |
| provides you with tax-deferred opportunities to save | | | | stipulation. While the earnings on your 529 account |
| up for your child’s education. The initial deposit | | | | are tax-deferred and so is the distribution to the |
| you make in a 529 account comes from your pocket | | | | university, the earnings are still considered taxable |
| that is your income tax paid dollars. But, the money | | | | when calculating the financial aid for the student. |
| you thus invest in a 529 plan grows tax-deferred | | | | Supposing you invested $10,000 in your 529 plan and |
| through channels set up by the state and yields same | | | | your earnings add up another $10,000. Now, if you |
| return of conventional mutual funds and bonds | | | | pay $5000 in a semester’s fee, the 2,500 dollars |
| families tend to invest in. | | | | in the amount which reflect earnings are considered |
| But let’s face it. No matter how much we | | | | as earnings of the student. This means that at a |
| manage to save for the college education of out | | | | 50% assessment (assessment levels of student |
| children, we still fall short in the end, considering the | | | | contributions are much higher than that of the |
| ever increasing education costs. So, the child is going | | | | parents) $1,250 is still deducted from the |
| to need financial aid in the end. Some say that the | | | | ‘financial need’ of the student in addition to |
| more you save up for your child’s education, the | | | | the 5.6% (parents’ contributions) of the total |
| less would be the financial-aid he would be receiving. | | | | money in the 529 account. |
| This is unfortunately true in the case of the 529 plan. | | | | Despite all the confusion, we are still generally |
| Financial aid is awarded in the form of grants or | | | | speaking here. There are many stipulations in the law |
| subsidized loans and the amount of aid depends on | | | | as well as rules implemented by individual colleges |
| the ‘financial need’ of the student. The total | | | | that could defer the amount of financial need of a |
| resources and family funding is deducted from the | | | | student. Also, it doesn’t mean that investing in a |
| cost of attending college in order to calculate the | | | | 529 plan is not a good option. While financial-aid is |
| financial need. This could effectively mean the 529 | | | | essential, you must realize that most of it is in the |
| savings plan you have invested in would reduce the | | | | form of loans rather than grants. This means that |
| amount of financial aid dollar to dollar. Fortunately, it is | | | | you or your child will have to pay interest tomorrow, |
| not so. While there would be no dollar to dollar cut in | | | | while you can earn interest today through a 529 plan. |
| the aid, there would be a deduction of up to 5.6% of | | | | A careful assessment of your financial condition and |
| the amount in 529 plan owned by parents. You might | | | | the number of years till college will help you decide |
| be surprised to learn that this is still good, because | | | | how much to invest in a 529 plan and how much to |
| the deduction would be 20% if the account was | | | | expect in aid. The bottom line is, of course, start |
| owned by the student himself. | | | | saving now! |