What’s keeping you from opening a tax-friendly 529 plan account to invest for education? Think there are too many restrictions and high minimum investments that offset the tax benefits ? Think again.
College and education decisions are hard enough without worrying about how to pay for it. Don’t let these common myths discourage you from getting started.
Myth 1: It costs a lot to open and maintain an account.
Fact: Fact: Most plans have low minimums (or even no minimum). To help families save even more, some plans offer matching grants, rewards programs or gifting services (such as Ugift® ) that let others make gift contributions to your student’s account.
Try our College Savings Calculator.
Myth 2: If your child doesn’t go to college, you lose your money.
Fact: Unlike other college savings options, the 529 plan account owner 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.¹
Myth 3: You have to make a lot of investment decisions.
Fact: Whether you prefer a one-step or do-it-yourself strategy, 529 plans generally offer several investment types that can meet your needs. The one-step strategy is an age-based option where the investment becomes 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 plan.
Myth 4: A 529 plan is only for schools in your home state.
Fact: You can use the assets at any eligible school² around the country and abroad. That includes two- and four-year colleges, graduate schools (including law and medical), vocational/technical schools, and K-12 education.³
Myth 5: You can only use 529 plans to pay for tuition.
Fact: You can use your account assets for many higher education expenses, including tuition, computers and equipment, fees, and certain room and board costs. Find out what expenses qualify.
Myth 6: I make too much money for a 529 plan account.
Fact: There are no income limitations for a 529 plan.
Myth 7: It’s too late to start a 529 plan.
Fact: Actually, 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 will have to borrow (and pay back) later.
The availability of tax or other state benefits (such as financial aid, scholarship funds and protection from creditors) may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors. The earnings portion of nonqualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.
Myth 8: 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. As long as your school is eligible, you can use your 529 plan assets—even if you’re not attending full-time.
The fact is—529 plans are a great way to invest for education. Learn how the benefits of a 529 plan can help make your student’s dreams come true.
Authors
Get Educated on 529s
Find out more about how a 529 plan can help you save for the future.
The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
An eligible institution is one that can participate in federal financial aid programs.
Not all states allow 529 assets to pay for K-12 education. Please refer to your state’s rules.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.