Julie Jason's Your Money: Test your knowledge about the 529 college savings plansBy JULIE JASON September 22. 2017 6:32PM
If you have children (of any age) who one day will be heading for college, I highly recommend you start exploring a valuable resource called College Savings Plans Network (CSPN).
CSPN is an affiliate of the National Association of State Treasurers, which is a forum for the exchange of information related to state finance, and whose members include state treasurers.
By arming yourself with information about funding college, your children can avoid becoming one of the 7 million Americans who are in default on their student loans. According to CSPN, 40 million Americans hold student loan debt totaling more than $1.3 trillion.
There is another path, but it requires knowledge, planning and, no question - effort.
Because college tuition has been increasing at an alarming rate during the past 40 years (two to three times faster than inflation), preparation is a necessity, and that calls for a long-term plan to save, not borrow, for a college education. That's what more than 12 million families have done using the 529 college savings plan.
To test your knowledge of 529 plans, take this three-question quiz provided by CSPN:
1. What is the maximum income the account owner can make in order to contribute to a 529 plan?
a) $30,000-plus per year; b) $50,000-plus per year; c) $100,000-plus per year; d) There is no income limitation.
2. Can 529 plan funds be used at any college or university in the country?
a) Only schools in major cities in the U.S. accept 529 plan funds; b) Any eligible educational institution in the U.S. or abroad will accept funds from your 529 plan; c) It is a case-by-case basis depending on the school, so best to check with the school administration before you apply; d) Only schools in your home state will accept 529 plan funds.
3. Will starting a 529 account affect a student's chances of receiving student aid?
a) Yes, but the effect is negligible; b) Yes, if you want to receive financial aid, it is best to not save in a 529 plan; c) No effect whatsoever.
Answers: 1. d); 2. b); 3. a).
How did you do? If you missed any, here are CSPN's explanations.
1. d) Anyone can participate in a 529 plan regardless of income of the account owner and, in most states, regardless of the age of the beneficiary.
2. b) Funds can be used at any eligible educational institution in the country, as well as many international schools, to pay for qualified higher education expenses. "Eligible educational institutions" are accredited postsecondary educational institutions that are eligible for financial aid and that offer credit toward an associate degree, a bachelor's degree, a graduate-level or professional degree, or another recognized postsecondary credential. Savings in a 529 plan can be used to pay qualified higher education expenses such as tuition, room and board, fees, books, supplies and equipment required for enrollment. Here is a link to check which schools are eligible educational institutions: fafsa.ed.gov/FAFSA/app/schoolSearch.
3. a) When it comes to financial aid, ANY assets that you or the beneficiary own (not just 529 plan assets) can affect your eligibility for need-based financial aid.
With 529 plans, your account is considered to be an asset of the account owner. Assuming the account owner is the parent, this means that, on average, about 5.6 percent of the value of the account is considered in determining the Expected Family Contribution. The EFC is the amount the family of the beneficiary is expected to pay toward that beneficiary's higher education. With many other savings vehicles, such as custodial accounts or assets that are in the name of the student, 20 percent of the value of the assets is considered in determining the EFC. If the account owner is someone other than a parent, such as a grandparent, this will not affect financial aid initially, but once money is withdrawn, the withdrawal amount will be deemed to be income for the beneficiary.
The idea is to use 529s to "save now to spare the pain of college loans later."
Take the time to explore CSPN's robust website at https://tinyurl.com/y9ggg3yz.
Julie Jason, JD, LLM, a personal money manager at Jackson, Grant of Stamford, Conn., and award-winning author, welcomes questions and comments to firstname.lastname@example.org.