Tim Gorrell, executive director of Ohio Tuition Trust Authority
October 31, 2016
Ghosts and ghouls, skeletons and zombies, haunted houses and 529s. You can be scared by things that go bump in the night but there’s no need to be afraid of 529 college savings programs. Let’s conquer some of those fears of what you can and can’t do with a 529 plan.
FEAR: I don’t have extra money for savings.
FACT: Budgets are a challenge for everyone but there are simple steps to take to build a 529 account. The easiest way to save is to automatically contribute money before you have a chance to spend it on something else. Most college savings plans offer automatic recurring investments so take advantage of this straightforward way to boost your savings!
Like ghosts, disappearing expenses — those costs that are in your budget for a limited time — can fade in to your budget; add them to your 529 accounts. For instance, preschool is a large disappearing expense for many families. Once your child starts school full time, consider rolling over former preschool or day care costs into regular 529 contributions so now you’re investing for their future.
For the milestones in your child’s life, have heart-to-heart conversations with family and friends about making contributions to your child’s 529 plan. Loved ones often would prefer to give the gift of college, rather than a toy that’s quickly forgotten.
FEAR: What if my child doesn’t attend college right away?
FACT: There are no time limits for when a 529 account must be used. Let the account sit and allow the tax-free earning continue to grow.
FEAR: What if my child doesn’t go to college?
FACT: You always have access to the money you have saved in a 529 plan. Hold onto to the account to see if your child rethinks the decision. If not, you can transfer the funds to any member of the family of the beneficiary, including yourself, without any tax consequences.
And remember, 529 plans are not just for traditional four-year programs; they can be used at any federally accredited educational institutions including two-year, graduate, professional or any post-secondary credential.
FEAR: Won’t the 529 plan have a negative effect on my child’s financial aid?
FACT: The assets in a 529 plan are a component in determining the Expected Family Contribution (EFC). Current federal guidelines state that if a student is a dependent and the 529 plan account is owned by a parent, then the account will be considered the parent’s asset and will be calculated up to 5.64% of its value when determining the EFC. So yes, 529 plans are considered when determining financial-aid eligibility, but their impact on need-based financial aid is minimal.
See? There’s nothing to fear about 529 plans. These accounts help you prepare for the future and allow you to support your child’s continuing educational needs. And you don’t need a crystal ball to see it.
About the author:
Tim Gorrell is the executive director of Ohio Tuition Trust Authority. For more than 25 years, Ohio Tuition Trust Authority has sponsored and administered CollegeAdvantage, Ohio’s 529 College Savings Program. CollegeAdvantage now oversees more than 635,000 accounts and over $9.77 billion in assets. Visit CollegeAdvantage.com or call 1-800-AFFORD-IT (233-6734) to learn more.