When 529 college savings plans first became available, I was a financial consultant at one of the world’s most prestigious firms. The plans were an arrow to add to the quiver, so to speak, but nothing I felt passionate about. I have to tell you that after reading the materials from ScholarShare, California’s 529 college savings plan, the product has improved by leaps and bounds. The fees are much lower and accounts like this now make sense for almost any family.
First, I could list a bunch of statistics about how expensive college is likely to be when your kid leaves the nest. You already know that college is going to cost a fortune. There’s books, tuition, living expenses, computers and more to account for.
The truth of the matter is that people who start saving money early, will usually have more money saved in the end.
It’s not always because of compound interest or a larger bank balance earlier in life.
It’s because you set a discipline the minute you open the account.
If you have a designated savings account open–a place to put an extra bit of cash here and there–you are more likely to actually deposit the money. I saw this happen time and time again with my own clients.
What Is A 529 Plan?
Don’t confuse a 529 college savings plan with a IRA–this is a common mistake. The 529 college savings plan has many advantages:
- Earnings in the account used to pay for qualified higher education expenses will be state and federal tax-free. When you earn interest in a normal brokerage or savings account, you pay taxes on interest and dividends earned.
- Contributing to a 529 plan may reduce the taxable value of your estate, making this a popular vehicle for grandparents and other relatives to transfer wealth. You’ll definitely need to consult your tax adviser.
- Anyone can open an account, though it’s important to think about who the account holder should be. It usually should be a parent. Get some advice about this.
- Funds can be used at private, public, trade or graduate schools nationwide and some overseas.
- Funds can be used for tuition, books, mandatory fees, supplies, certain room and board costs and certain expenses for special needs students.
- Typically, assets are considered the primary account holder’s (parent) and do not count toward financial aid eligibility. It depends on the school, however.
ScholarShare operates the 529 plan in California (each state has their own). The fees for ScholarShare are some of the lowest 529 fees in the country. In fact, they are quite low, in general. There’s no initial fee, just a very small annual fee that’s a percentage of the account balance. This is normal for mutual funds and ETFs. The fee depends on the portfolio and ranges from .18% to .62%–that’s almost nothing, relatively speaking, considering you’re (hopefully) earning far more than that in the account.
- Allocate your funds between 19 portfolios based on your comfort level and age of your child. View account performance.
- There are no income limitations. It doesn’t matter how much money you make, you can have a ScholarShare 529 plan.
- If you move out of state, you can keep ScholarShare.
- You can contribute up to $350,000.
- You may transfer the account to another beneficiary.
- The plan is managed by TIAA-CREF Tuition Financing.
- Accounts have online access.
The most common question that I would get in regard to these accounts is:
What happens if my child decides not to go to college?
Not to worry, your money isn’t lost. Keep in mind that your child would need to skip college, graduate school, trade school, or other eligible credentials. If you decide not to transfer the account to another beneficiary, you can access the money. The earnings portion would be subject to federal and state tax (just like a normal account), plus a 10% penalty. You will always be able to access your money. Learn more about what happens if your child gets a scholarship, how the account impacts financial aid and more with this helpful college savings plan FAQ.
Talk to your financial adviser about ScholarShare and have a look at the ScholarShare website for more information.
Do you have a ScholarShare 529 College Savings Plan? Let us know how you like it!
*Thanks to ScholarShare for sponsoring this post. Opinions are my own so get advice from your professional.