529 College

529 Vs. Financial Aid For College

There are usually two doubts that bother parents after they invest in a 529 college plan. First does investing in a 529 college plan reduce the chances of their child securing college financial aid? And the second is that if their child manages to secure a scholarship then what happens to the money that they don't require to spend on education?

It is difficult to predict how the financial aid departments of college will function after ten years but one can safely presume that the college financial aid eligibility will be reduced if you are a 529 College account holder. Nevertheless this should not deter you from saving in a 529 college account. As of today 529 College accounts do not affect college financial aid much as 529 accounts are considered parental assets and only 5-6% of these assets are considered accessible for college expenditure.

Plus parents get asset protection benefits if they belong to a certain age. For instance if the age of the parents is 45 years then the first $42100 of the assets are reserved and this amount increases as the age of the parents increases. But then these are the rules as of today and are subject to change as and when the congress makes clear clarifications as to how the 529 college account should be reviewed. It may decide that the assets in the account be considered as the assets of the beneficiary. If this happens then 35% of the assets would be considered as disposable tuition fees every year.

But this is highly unlikely. One must not focus too much on college financial aid when saving. As today most financial aid comes from loans and not investing in a 529 plan would ensure that your child is weighed down by such loans when the time of graduation approaches. One must tactically plan when saving for the college education. One must not invest in excess in the account as that will obviously have an adverse effect on the College financial Aid. Now when it comes to your child obtaining a scholarship the good news is that the 10% penalty is not claimed on the leftover amount that is not spent on college education. But income taxes are still levied on the amount. So it is still a good idea to invest in a 529 plan as one cannot really depend on scholarships and college financial aid for the astronomical college expenditure. More often then not chances are that even after you get some financial relief in form of these the money would still not be enough to meet the costs.

Moreover the scene after a decade is highly unpredictable so one should ideally invest in 529 plans as it proved your child with a secure and stable future and save you also from unnecessary stress.