529 College Savings - Childrens Savings Account?
Question:
Answer:
A 529 is a tax deffered college savings account.
If you open the account, you control the money. You can name whoever you want as the beneficiary. if your child is named as the benficiary, it will have NO effect on your child getting a scholarship because YOU control the plan. The college would have no clue that there was a 529 plan with their name on it.
Please, listen to me. Don't open a savings account for your children. They are young and more than able to withstand the ups and downs of the stock market, in the end, the stock market will yeild a much larger amount than the savings account. With a time horizon of 10+ years, its ok to take a little short term risk in the stock market for the historical long term gains.
A 529 plan is the way to go!
Good Luck!
Predicting just how withdrawals from a tax-free 529 college-savings plan will be handled by financial-aid offices more than a decade from now is tricky business. That said, it's a pretty safe assumption that, yes, they'll reduce financial-aid eligibility. But that doesn't mean you shouldn't continue with your contributions.
For what it's worth, right now 529 savings plans generally have relatively little impact on financial aid, says Ellen Frishberg, financial-aid officer at Johns Hopkins University. That's because under the federal formula (which is the formula used by most schools to determine financial need), they're currently considered part of the account owners' assets (typically the parents'), which are heavily protected in the need-analysis formulas. Under this methodology, no more than 5.6% of parental assets are deemed available for college costs. (Keep in mind, some private universities may assess 529 plans differently
It will not ruin their scholarship, it will limit your chances of getting financial aid from the government. In 529 plans, if your child has a scholarship, you may withdraw money from the 529 plan of whatever the scholarship is worth. For example, if your child gets a $5000 scholarship, then you can withdraw $5000 from the 529 plan and only pay income tax (no 10% penalty).
In order to get a scholarship, the child must meet a certain criteria (usually having a GPA of 4.0 or being a star athlete). There's all kinds of scholarships out there. The child can check with the guidance counselor to find out the list of scholarships being offered. So it has nothing to do with how much you have saved or how much money you make, its all about being a better student than the rest.
Depending on the age of your children, a 529 plan is usually the best way to save for your kid's education. If they are in high school, you can still open a 529 plan, but you are not going to see much returns on it (if any). If you understand mutual funds, it takes awhile to see a return on it. So you want to open it as early as possible per child.
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