How Good Is a 529 College Savings Plan?

Recent years have heard a lot of noise about the 529 college savings plan. They have been proclaimed as the answer to student’s needs to be able to provide a great way to save money for college education. The question has to be asked, “Just how good is the 529 college savings plan?”

When they came out, they were believed to be a great solution because of the benefits promised to both those who laid up the money in the 529 plans, and to the recipients – the students who reaped the benefits of the gift plus interest toward their education.

The benefits are plentiful. The 529 plan provides an excellent way for parents to save money for college. Every state has some form of 529 education savings plan. Taxes are deferred on the interest gained, and the plans are usually attached to a mutual fund. Taxes are due, however, if the money is not used toward education in some way, and there will be a 10% penalty tax, too. Some states allow a deductible amount on the state income tax.

Other benefits also apply which make the 529 plan better than most. Because each state has their own versions of the college savings plan, their rules about applying the money and getting the best benefits may also differ. One state may give more benefits if the student attends college in that particular state. The plans can be saved in one state and used in another – there are no limitations.

Recent economic problems, however, have tended to somewhat dampen the enthusiasm about these plans. The amount of interest is currently small, but may still be better than other investment choices. According to Karen Blumenthal, she says that many 529 plans are now “adding lower risk investment choices in hopes of making their plans more lucrative.”

One thing that makes the plan possibly better than nearly all others is the fact that the donor retains control over the funds and their distribution. The student or the college does not make those decisions. Also, the amount of funds that can be put into a 529 college plan is much greater than others. A total amount of $300,000 can be applied over time, but not in a single contribution.

Even with the lower interest rates, which actually depend on your risk-level, the 529 college savings plan is still one of the best plans around to help people saving for college. Blumenthal also suggests that you should mix your college savings funds in more than one plan for the best results. You can even use it for your own education.

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