5 Things you should know before investing in 529 plans
  • Alan Jose
  • August 25, 2021

Savings plans for students come with huge verities. Perhaps, for this reason, a student gets confused and unable to fix his mind what to choose as per his requirement. A savings plan is not like buying a Smartphone or even purchasing a hairdryer. Instead, it is more than anything. 

Although this 529 plan is quite popular among students, finance experts found out some flaws too. Actually, there are some drawbacks to this particular savings plan. So, before you invest money in this savings plan, a person should know about it properly. 

Before we begin with pointing out flaws, let us know different types of 529 plans. 

Various types of 529 Plan 

Usually, two types of 529 plans are available within the investment market. One is a college savings plan, and the other is a prepaid tuition plan. Both of them have different features and provide financial assistance to students. 

However, direct lenders offer loans for people on benefits with no upfront feesespecially for students. So, one can even borrow money from such direct lenders too. 

College savings plan 

By the term, it is not difficult to understand that a college savings plan allows students to save money for higher studies. But it is not like keeping money in a savings bank account. A relatively amount of cash invested monthly is used in different portfolios. However, a student may choose his suitable portfolio, or the finance expert may randomly select a profitable one. 

One may utilize the fund for any expenses related to education. There is a list of colleges and universities under this savings plan. If any student wants to spend money for taking admission or paying fees to any of those colleges, then he can utilize the money saved in 529 plans. If you think that only national universities are there, then you are wrong. 

Many international universities also come under this list of college savings plans. But the only criteria is for getting the benefits of a 529 plan is, your selected colleges and universities must include in this list. 

  • If you hire a plan manager, he may ask you for additional fees for your college savings plan. However, a plan manager may drive out expenses related to investment. 
  • The college savings plan offers exemption from paying tuition and admission fees and includes charges applicable for residence and food.    

Tuition savings plan 

This savings plan is primarily for students who want to book their tuition for the future by signing a contract. 

As a result, a student can easily carry on the expense of tuition in the future. Usually, students need to pay a lump sum amount of money while getting admission to a teacher. A tuition savings plan drives out the tension of paying a considerable amount. 

This savings plan offers the facility of purchasing credit units. When a student purchases such a unit, all the expenses related to education will be covered by that unit.  

Do not forget that such prepaid plans will ask you for nominal fees. Besides, there is also the chance of administrative fees.

Tuition plans are sometimes limited up to undergraduate schools.  

5 Things you should know before investing in a 529 plan 

Perhaps you did not know about these things before and opted for a 529 plan. But one must proceed only after knowing these factors. When you are in necessity of funds, then you should know every single detail properly. 

  • 529 is not for little students 

Being new parents, if you think that it is the right time for saving money to safeguard the child’s education, then it is entirely wrong. 529 savings plans do not offer any benefits to little kids. There is no facility at all for pre-school goers and even for primary school students.

  • It is not charge-free

To promote these savings plans, different financial intermediaries will tell you great features. Yes, there is no deduction on additional income in a 529 savings plan, but it is wrong that such a plan will not charge anything. Actually, it is not possible for any of the investment plans. 

I mentioned earlier that you need to pay some nominal fees to open the tuition savings plan. Even there are special fees if you hire a plan manager for taking care of your account. Moreover, after booking prepaid tuition for your child within the country, you need to pay extra for the cancellation if he suddenly gets the chance abroad.

  • The mode of payment is a problem. 

With the advancement of technology, now almost everyone is habituated to online money transfers. Even bank transfer has become simpler nowadays. But while looking for an advance slot or even credit unit, there is no online or transferable payment scope. 

Instead, a person needs to pay only cash. The entire process of investing money only accepts a cash deposit. It is the major drawback for people with disabilities. 

  • It may close the possibilities of other subsidies. 

Students who need subsidies due to belonging from below the poverty line may become the worst sufferer because after beginning 529 plans, one can’t get any other financial subsidies. 

  • Pay extra charge 

This 529 plan must be utilized for paying education expenses only. If anyone uses the saved fund for another purpose, it will charge an extra fee. 

So, before applying for a 529 plan, one must look at these factors and then decide whether it is suitable or not. 

Description: 

There are some drawbacks of the 529 savings plan, which is mainly for college students. One must consider these five things before applying for such a savings plan.  

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