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Are 529 Plans Necessarily the Best for Everyone?

If you have been considering the 529-college savings plan, you will want to consider many things before choosing. Knowing whether this is the best type of plan for you is the first item on the agenda before investing. You will want to consider the benefits of this type of college savings plan, and then you need to consider the downfalls of the plan when compared to other options. One of the best things about the 529 savings plan that makes it more versatile for a variety of people is that it offers two options. You can choose between the pre-purchase plan and the traditional investment plan. This allows you to either buy college credit hours at today’s prices (which can save a lot), or invest in an allocated savings plan. However, this does not mean that a 529 savings plan will work best for everyone, and there are many factors to consider.

Since individual states operate their 529 plans, each state has its own incentives. This means that some states will offer more incentives and better benefits than others will. For example, in states where there is no income tax, the fact that this money does not count for this tax is not an added bonus. Additionally, some states have a higher minimum deposit required every month than others do. You should consider these important factors, along with comparisons to other plans. If you do not have an amount to deposit every month, for example, you may want to consider a different type of college savings plan. This is because the 529 plan does require that you make an investment every single month. If you do not want to commit to this, there are other options available to you that do not have this same requirement.

Another consideration when you are trying to decide whether a 529 plan is best for you is how many children are involved. Designation of this money is for college funds only, so if you only have one child and no relatives that it could apply to, you may be taking a risk investing in this type of plan. In some other college savings plans, the money does not have to be for college, so if your child decides not to attend school for a higher education, you retain the money. With the 529-college savings plan, however, you have many penalties if you do this.

One last thing to consider is the method of investment for the funds. Typically, a 529 savings plan works on an age-based program, with the funds for younger children allocated with more risk. As the child ages, and becomes closer to college ages, the investments become less risky and more stable. This works well most of the time, but for those who like to control their own investment risks, this type of plan may not be for you. You do get the ability to predetermine how your accounts are invested, but with restrictions. Then, once this is set up, you can change your investment options once each calendar year on a steady account.

Therefore, while a 529-college savings plan is a great tool for saving college money, it may not be the best option for everyone. You should consider these factors, among many others, thoroughly before making a decision. You should also keep in mind that no college savings plan is perfect, and pick the one that seems to fit your needs best. By doing a lot of research and comparisons, you will be able to find the plan that will work best for you, your child and your money.