Fact or Fiction? The Biggest Myths of 529 Plans
FICTION: A 529 plan can only be used at schools in your home state.
FACT: You can use the assets at any eligible school around the country and abroad. That includes 2- and 4-year colleges, graduate schools (including law and medical), and vocational/technical schools.1
FICTION: You can only use 529 plans to pay for tuition.
FACT: You can use your account assets for many higher education expenses, including tuition, mandatory fees, computers, and certain room and board costs.2
FICTION: It costs a lot to open and maintain an account.
FACT: Most plans have low minimums. Some, like Learning Quest, have no minimum. To help families save more, some plans offer matching grants, rewards programs, or gifting services that let others make gift contributions.
FICTION: You have to make a lot of investment decisions.
FACT: Whether you prefer a one-step or do-it-yourself strategy, 529 plans generally offer several investment options that can meet your needs. The one-step strategy is an age-based option where the investment becomes more conservative as the beneficiary gets closer to college age. The do-it-yourself strategy offers a range of individual portfolios that allow you to create your own investment plan.
FICTION: It's too late to start a 529 plan.
FACT: It's never too late. Even if your student is in high school or you are planning to enroll in classes soon, you can still take advantage of the tax benefits of a 529 education savings plan. In addition, the more you manage to save now, the less you will have to borrow later.
FICTION: I make too much money for a 529 plan account.
FACT: There are no income limitations for a 529 plan.
FICTION: A 529 plan is only for kids.
FACT: Are you considering career retraining or an advanced degree? There's no maximum age for a 529 plan. As long as your school is eligible, you can use your 529 plan assets — even if you're not attending full-time.
FICTION: If the child doesn't go to college, you lose your money.
FACT: Unlike other education savings options, a 529 plan account owner controls the account. That means you can change your beneficiary to another eligible "member of the family" (as per plan rules) with no tax penalty.4
FICTION: Only a parent can be an account owner.
FACT: Parents, grandparents, aunts, uncles, friends... almost anyone can be an account owner. You can also open an account for your own education.
FICTION: It's difficult to open up a 529 plan account
FACT: Most 529 plans let you open an account online, so even busy families can start saving for higher education.
1 An eligible institution is one that can participate in federal financial aid programs.
2 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
3 The availability of tax or other state benefits (such as financial aid, scholarship funds and protection from creditors) may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.