If you want to help pay for your child’s college education, you might want to consider contributing to a 529 plan. With this plan, your earnings grow federally tax-free, as long as the withdrawals are used for qualified higher education expenses such as tuition and room and board.
You may have heard some things about 529 plans that are keeping you from investing in one. These concerns may be more myth than reality – so let’s take a look at a few of them.
“I need a lot of money to contribute to the plan.” This myth has essentially no truth to it. Typically, only a modest amount is required to open your 529 plan.
“If my child doesn’t go to college, I lose out on the money I’ve put in.” This myth runs counter to one of the 529 plan’s greatest benefits: flexibility. If you’ve named one child (or grandchild) as a beneficiary of a 529 plan, and they decide against pursuing higher education, you can change the beneficiary to another eligible family member.
“I have to invest in my own state’s plan.” You’re free to invest in the 529 plan of any state, no matter where you live. It could be advantageous for you to invest in your state’s plan.
“A 529 plan will destroy my child’s chances for financial aid.” While a 529 plan could affect your child’s financial aid prospects, it might not doom them.
But, in any case, don’t let “myths” scare you off from what could be one of your best college-savings vehicles.