#529Plan #CollegeSavings #EducationInvestment
High fees
One of the major drawbacks of the 529 plan is the high fees associated with it. These fees can eat into your savings over time, reducing the overall returns on your investment.
Limited investment options
Another con of the 529 plan is the limited investment options available. This can restrict your ability to diversify your portfolio and potentially earn higher returns.
Penalties for non-education expenses
If you withdraw funds from a 529 plan for non-education expenses, you may be subject to penalties and taxes. This can be a disadvantage if you need to access the funds for other purposes.
Impact on financial aid
Having a 529 plan can potentially impact your child’s eligibility for financial aid. The assets in the plan are considered when determining aid packages, which could result in reduced assistance.
State-specific rules
Each state has its own set of rules and regulations regarding 529 plans, which can be confusing and cumbersome to navigate. This lack of uniformity can make it challenging to choose the right plan for your needs.
In conclusion, while the 529 plan offers many benefits for saving for college, it also comes with its own set of drawbacks. It’s important to weigh the pros and cons carefully before deciding if this investment vehicle is right for you and your family.
Can’t be used at most non-American universities. If your kid ends up deciding to go to uni in Europe, for example, the money will be essentially useless for them.Â
Very few cons. Not all 529 plans are as good as others (some limit investment choices or have higher fees) and not all states offer a state income tax advantage to participating. With the new recent law that allows some unused 529 plan money to eventually be converted to a Roth IRA that is even more reason to love 529s.
[Savingforcollege.com](http://Savingforcollege.com) is an excellent site for all things 529 plan related including rankings of all the various plans.
[https://www.savingforcollege.com/intro-to-529s/which-is-the-best-529-plan-available](https://www.savingforcollege.com/intro-to-529s/which-is-the-best-529-plan-available)
The penalty is the con but it’s still worth it
I only have experience with the NY state one, but one con is that all their funds are pretty conservative and growth is minimal.
We have a child going to college in September, and we have a 529. We only have one child, and we put about $100,000 in it.
It’s limited in what it can be used for. It’s hard to predict how much you should save in a 529, because nobody really knows what higher education will cost in 18+ years, or whether your children will even go to college, or whether they will choose an in-state, out-of-state, public, or private institution. The recently-added option to use leftover 529 funds for Roth IRA contributions after 15 years still carries several limits and caveats. In particular, the $35k lifetime cap that can be “rolled over” to a Roth IRA is not indexed to inflation and will be worth a lot less in real terms by the time your kids could potentially take advantage of it.
Edit before I get any blowback: This isn’t intended to be an exhaustive list of all possible cons. I’m also not trying to say that I think 529 plans aren’t worthwhile. I just wanted to name a few things that I think often get glossed over.
One con – having savings for college lowers aid a tiny bit. But I’ll say this – I am glad I did it. We contributed the minimum to get the max tax deduction, if that makes sense. A ‘smart’ family member with a kid about the same age told me I was a fool to do this, that the colleges would just deduct our savings from any aid package. Not exactly true. 17 years later, Having the savings to pay for 80 percent of the expected total cost of four years lowered the aid offered by $3 k a year out of a total cost of $33k a year.
That family member is having to float what his son can’t borrow with PLUS loans. If you can save, do it.
My son ended up with a full ride to a state school. I have a boatload of money in his 529 I can’t use without a penalty now. I know I can convert it to an IRA but I want the money back. Probably just going to take the hit.
You can use a 529 for tuition, housing, food, supplies but it is limited.
But you cannot use it for travel costs, commuting/parking, living expenses (supplies for dorm room/apartment, etc.), health related costs, and anything a student would need outside the allowable 529 items.
Plan to contribute money outside the 529 and save some extra.
I can only say this….i had to pay for my sisters college the 2nd and 3rd year if I remember. It would have been great and she would have taken her education seriously…..consequently she didn’t. This incident has since tainted me. I never want my child to feel privileged or entitled. I want her to work for everything she has and know the value of education. She will be taking out student loans so she knows she is accountable and cannot screw off all this money. But I have funds set aside in a different account (in the form of real estate) to pay for college. I just don’t like my money being delegated, unless I have some say so.
Con is the taxes you have to pay for non qualified withdrawals of the earnings
It’s the PARENTS income tax rate plus 10%
NOT CAPITAL GAINS…..
Honestly very few. There are some very valid limitations listed here but most are true of any savings account. You don’t know how much you need. But it’s also for a wide variety of types of education and the beneficiary can be changed. It’s basically impossible to oversave.
Cons: can only use it for education cost