What are the negatives of a 529 plan?

What are the negatives of a 529 plan?

Here are five potential disadvantages of 529 plans that might affect your savings choice.

• There are significant upfront costs.
• Your child’s need-based aid could be reduced.
• There are penalties for noneducational withdrawals.
• There are also penalties for ill-timed withdrawals.
• You have less say over your investments.

Can grandparents start a 529 plan?

Can I open an education savings account for a grandchild? Yes, you most certainly can open a 529 account as a grandparent — you can generally name anyone as a beneficiary of a 529 account. These accounts can be a useful financial tool for both grandparents and their grandchildren.

Can parents and grandparents contribute to 529?

Yes, 529 plans accept third-party contributions, so a grandparent may contribute to a grandchild’s 529 plan account, regardless of who owns the account.

Can both parents be on a 529 account?

Each parent can split the funds in the 529 account to make two separate accounts. Ownership of the account can be transferred to one parent. You can file “interested party statements” to ensure the account funds are being used appropriately.

Can you have 2 529 accounts?

The short answer is yes — the same child can be the beneficiary of multiple 529 plan accounts. If several people — parents and two sets of grandparents, for instance — want to help fund a child’s education, they can either contribute to a single 529 account or set up separate plan accounts.

Who owns a 529 plan in a divorce?

Most 529 plans do not allow joint ownership, which means only one parent can be the account owner. In the event of a divorce, one parent could be left with full control over a child’s college savings.

Is a 529 Plan a marital asset?

A 529 plan is a marital asset. So, the college savings account can be listed along with other marital property for decision-making considerations during the divorce process. Unlike a marital home that may have both spouses’ names on the deed, a 529 savings plan has only one name on the account.

Can 529 be used for spouse?

Remember that as the account owner, you’re not the beneficiary. But if you’re transferring 529 plan savings to someone else, you can choose yourself or your spouse to be the beneficiary going forward. If your child has a step-parent, they can also be named as a beneficiary.

What happens to a 529 plan in a divorce?

As community property, a 529 savings account is subject to division in a California divorce. To address this issue, divorcing spouses can either go back to splitting the 529 account, or they can include terms regarding the use of 529 assets in their settlement agreement.

How long can you contribute to a 529 plan?

You may contribute to a 529 plan at any time throughout the year, and you do not have to stop making contributions once the beneficiary reaches a certain age. But, some families may want to complete their annual contributions by a specific date to maximize state income tax benefits and the annual gift tax exclusion.

Are 529 plans counted on fafsa?

The value of a 529 plan owned by a dependent student or one of their parents (529 plans do not allow joint ownership) is considered a parent asset on the FAFSA. Any parental assets beyond that amount will reduce a student’s aid package by up to a maximum of 5.64% of the asset’s value.