529-savings plan does not necessarily provide quick cash
Many consumers look to the 529-college savings plan as an answer for finding quick cash when a student moves on to higher learning. Over the past few years the plans have been advertised heavily in the market. Operators of the plans capitalize on the fact that parents want to do right by their children. They understand that saving for college is one of the loftiest goals they can take on, but often time and luck are against them. For example, a parent who starts a college fund for a child at five is going to fare better than a parent who wants to open an account when the child is entering high school. The latter is forgoing a decade’s worth of savings, and that can mean a lot in the world of compound savings. Still, parents are looking to the 529-accounts as a means of funding the expense of an Ivy League school. With tuition costs promising to rise, just like they have in past years, parents need to be ready to help with the thousands of dollars needed for an education.
A simple way to save
Many operators have advertised 529-college savings plans as a “simple way” to save. The reality is that nothing about the plan is simple. In fact, parents need to educate themselves with regard to what their state’s tax laws are regarding the accounts. Then, within the accounts there are outrageous options to pick from. Do parents want a conservative option? An aggressive option? A combination of the two? The answer to that depends on how much time they have to save. Savingforcollege.com noted in a recent post that there are more than 3,000 possible investment options with 529 accounts.
The other thing to remember with 529 accounts is that there is no singular way to report results. Because of this, parents who want to comparison shop before they choose a plan need to be ready for some heavy-duty research. There are some websites that offer insight like Morningstar.com or Savingforcollege.com, but parents will still have to understand the calculations to truly compare different savings options. Of course there are financial advisers that will do the work, but they come along with a hefty commission, and the expense can eat away at the quick cash parents were hoping to put into education savings.
But the tax breaks are worth it
Another advertised special of the 529-college savings plan is that the tax breaks are abundant. In reality there are a lot of advantages tax-wise, but they benefit only if the account has gains. For people who opened their accounts right before the recession, there may be few gains to speak of. The past few years were not good ones for anyone looking to invest. Many people holding just-opened 529-savings plans have losses. With a top capital-gains tax rate of 15 percent, parents need to make outstanding gains for any tax savings to be realized.
529-college Savings Plans are great for everyone
Just like all investments, the 529-plan is not for everyone. The main virtue of the plan comes to fruition for parents who have a lot of time to work on them. Parents with only five years to save may find other investment options offer a quicker return and are more aggressive savings vehicles. On the other hand, parents who start a college savings account when children are born can benefit from 529-plans. The plan has a long enough time span to regulate out any downturn in the economy and overcome the ups and downs of stocks and bonds.
Deciding on the 529-college savings plan
The 529-plan is a great option if parents meet certain qualifications. Time and luck can play a big part in how much a parent is able to save over the years. Though the savings plan has its benefits, it isn’t always the sure-fire way for quick cash. Parents should consider their personal situation and then make the best decision for saving money for their children’s college education.