I wrote a blog post a bit ago about 529 savings plans. (Find it here) I believe they are great savings vehicles when it comes to saving for college. No, it’s not the only option, but a great one nonetheless. I gave a brief overview of them and wrote about the benefits of using one.
In this blog post, I will now talk about 3 of the top mistakes people make when it comes to utilizing 529 plans.
Failure to look out of state
Yes, you can open a 529 savings plan in a state you don’t live in! Some states have better incentives than others. Also, some states offer better fund and management fees. And, depending on if you were a resident of the state, you could get a bit of a tax break. More than 30 states offer tax deductions. Find out about tax deductions here.
Parents choosing 529 savings plans over retirement
Yes, college costs are increasing A LOT! Yes, parents choose to sacrifice their retirement savings for their children so their children can have a better life. I get that. The problem is when you won’t have enough money in retirement to cover your expenses – for the rest of your life. This, in turn, could create a burden on the very children you sacrificed your money to help! See where this is going?
Failure to open one so your child can get more financial aid
I’ll be honest. I was guilty of this for several years. Just in case my kids needed financial aid, I didn’t want them to be inhibited due to having money in a 529 account. However, the longer you wait, the less they will have in their college savings account. Waiting will not take full advantage of compound interest. I realized that if they ever needed financial aid (and I use this as a pretty much last resort), then they can at least use their 529s first. After all, that’s what it’s there for! Plus, there’s no guarantee they will even receive financial aid.
Bonus mistake: Failure to open a 529 savings plan in the first place
As I stated before, the longer you wait, the less time compound interest has to work its magic (Oh, how I wish I started when they were babies!) Many times, you can open one with as little as $25. Just get started!
Final Thoughts
These are the top three mistakes (plus one bonus!) that I find people make with 529 plans. Have you, or do you know someone who has, done one of these? What other mistakes do you observe people make?
Do you need help taking back control of your money instead of your money controlling you? Schedule your free consultation with one of our Accredited Financial Counselors® today. Let us help you Sleep Well At Night!
