529 Plans May Not Be the Proper Savings Vehicle for Low-to-Middle Income Families…


Although the value of a college degree has been questioned, it’s well-settled that those with 4-year degrees earn an average of $1 Million more during their lives than those without.  Today, a degree is “a must,” taking the place of a high school diploma.

At the same time, the expense associated with obtaining that degree has increased 2%-3% per year above the rate of inflation.  Unfortunately, more than 70% of families haven’t saved enough to cover these costs; more than 50% have saved almost nothing.

In fact, quite a few families have no idea how they’ll cover those expenses.  At least some have attempted to save and started 529 Plans.  But, are these plans the proper savings vehicle for low-to-middle income families?

Statistics show that half the families saving for college don’t know these plans exist; those that do find the investment options much too complex.  These families should be savings, yet they’re investing.  Savings and investing aren’t the same; they’re two very different practices.

529 Plans are poorly designed – the focus is on tax savings, a factor having little impact on families without large tax liabilities.  Contributing to a 529 also counts against families (at different rates, depending on the schools) when they apply for financial aid.  Moreover, the account balance is subject to market forces, as well as restrictions governing when and how the funds can be used.

While these plans, in practice, have failed to help low-to-middle income families cover their portion of the cost of a degree, they definitely have benefited the financial industry (via administrative and transaction fees) and higher income families that don’t need the help.

Learn when, where, and how to save for college.  Contact our Professional College Planners to schedule an appointment and begin your family’s college planning campaign.


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