When it comes to saving for college, many parents and families don’t know where to start—and when they do, they can be quickly overwhelmed with conflicting or misguided information. On May 29 (5/29), the College Savings Plans of Maryland, an independent Maryland State agency, will join the College Savings Plans Network, a national non-profit association that advocates for 529 college savings plans, to help promote “529 College Savings Day”. The day is aimed at combating misinformation in the 529 market and educating families about the importance of saving for college.
“Many myths have been circulated about options for saving for college, including 529 plans,” said Joan Marshall, Executive Director of the College Savings Plans of Maryland. “The truth is that 529 plans are convenient, tax-advantaged ways that families of all income levels can plan ahead to pay for college. On May 29, we encourage parents, grandparents, family members and friends to learn the facts about this important savings vehicle and make a plan to make their higher education dreams a reality.”
Top 10 Myths About 529 Plans
Fiction: A Maryland 529 plan can only be used at colleges in Maryland.
Fact: You can use the assets at any “eligible educational institution” around the country and even at some colleges outside of the U.S. That includes 2- and 4-year colleges, graduate schools (including law and medical), and vocational/technical schools.1
Fiction: You can only use 529 plans to pay for tuition.
Fact: You can use your account assets for many higher education expenses, including tuition, fees, books, and certain room and board costs.2 The Maryland Prepaid College Trust is designed to be used towards tuition and mandatory fees; however, in the event of a scholarship, funds can be applied to other qualified expenses.
Fiction: It costs a lot to open and maintain an account.
Fact: You can start the Maryland College Investment Plan with as little $25 a month with automatic monthly contributions from your bank account. With the Maryland Prepaid College Trust you can start with an affordable community college plan.
Fiction: You have to make a lot of investment decisions.
Fact: Whether you prefer a one-step or a do-it-yourself strategy, the Maryland College Investment Plan offers a variety of investment options. The one-step strategy is a simple age-based option designed to become more conservative as the beneficiary gets closer to college age. The do-it-yourself strategy offers a range of individual portfolios that allow you to create your own investment mix. Also, the Prepaid College Trust allows families to lock in tuition at today’s prices and can be used with or without an account in the College Investment Plan
Fiction: It’s too late to start a 529 plan.
Fact: It’s never too late. Even if your student is in high school or you are planning to enroll in classes soon, you can still take advantage of the tax benefits of a 529 plan. In addition, the more you manage to save now, the less you may have to borrow later.
Fiction: I make too much money for a 529 plan account.
Fact: There are no income limitations for a 529 plan. In fact, as part of the tax advantages offered by a 529 plan, account owners can contribute up to $13,000 ($26,000 if married, filing jointly) in a single year without incurring a gift tax.
Fiction: A 529 plan is only for kids.
Fact: Are you considering career retraining or an advanced degree? There’s no maximum age for a 529 plan. In fact, a 529 savings plan can be used by adults saving for their own higher education expenses to finish a degree or complete an advanced degree - even if you do not attend full-time.
Fiction: If the child doesn’t go to college, you lose your money.
Fact: Unlike other college savings options, a 529 plan account holder controls the account. That means you can change your beneficiary to another eligible “member of the family” (as per plan rules) with no tax penalty.
Fiction: Only a parent can be an account holder.
Fact: Parents, grandparents, aunts, uncles, friends…almost anyone can be an account holder. 3 You can also open an account for your own education.
Fiction: If I save now, my child won’t be eligible to receive as much financial aid.
Fact: The Deficit Reduction Act of 2005 specifies that funds saved in 529 plans are generally considered to be parental assets, which means that only about six percent of these assets are currently counted towards the family’s expected contribution in federal need-based financial aid calculations.
“The most frustrating myth I hear is: ‘I’ll never be able to save enough,’” said Marshall. “Putting away even small sums of money can really pay off over time when families make a plan and stick to it. On 529 College Savings Day, I invite families in Maryland to learn more about the flexibility, affordability, and tax advantages that the two Maryland 529 Plans offer. And I encourage them to view an ‘on demand’ webinar at CollegeSavingsMD.org. This presentation is a resource to help families work together to develop a plan to help achieve their higher education dreams.”