Celebrating 529 plans on National College Savings Day

We have all heard the statistics that the cost of college is going up rapidly. In fact, it’s reported that the average cost of a four-year private college education is topping $198,770 for a student starting next year.

As the school year begins to end for some and National College Savings Day (5/29) fast approaching, now may be an opportune time to start thinking about college – particularly 529 college savings plans.  Here are some things you should know when considering a 529 plan.

529 plans aren’t just for your children. They can be ideal for anyone with college funding needs whether you’re a retiree looking to expand your knowledge base or a young professional hoping to advance your career. While most create a 529 plan for their children, many others from all walks of life utilize this savings plan as well.

Additionally, 529 plans aren’t just for in-state colleges. So while a parent or grandparent may opt to set up the Colorado Scholar’s Choice 529 plan in Colorado, the child or beneficiary can use the money to go to any in-state, out-of-state or international institution, as long as it’s used with an accredited program.

Tax laws are complex and are subject to change. Individuals should always check with their tax or legal advisor before engaging in any transaction involving 529 plans.

Perhaps where I see the most concern from parents when considering 529 plans is whether it would impact a student’s financial aid eligibility. This is where who owns the 529 plan becomes important. Student aid is based on the student’s Expected Family Contribution (otherwise known as EFC) and what is reported on the Free Application for Federal Student Aid (FAFSA).

The 529 plans owned by parents reduce need-based aid by a maximum of 5.64 percent of the asset's value. That means if you have $20,000 in a college-savings plan for your daughter, her aid would be reduced by roughly $1,100. For financially independent students who hold their own 529 plans, the assessment is a far larger 20 percent.

As we celebrate 5/29 this weekend, consider putting some money aside for your amazing little ones or even perhaps for your own education!