By John Drachman
With the graduation season behind them, 69% of grads started off their careers with almost $29,900 of debt. While 14% of parents meanwhile are on the hook for an average of $37,200 in federal parent PLUS loans.
Fortunately, for those who spent some of the last 20 years investing – and encouraging other family members to invest in their child’s 529 account – bull market gains helped pay the bills over four years and in some cases provided leftover money in the account.
Tax-advantaged, state-sponsored 529 savings plans are now one of the most popular options for tucking some money away to make sure school expenses will be covered when your child reaches college age.
Extra collegiate Benefits of 529s
The number of people using 529s is growing. Total accounts hit a record 13.6 million in the first half of 2018, and assets totaled $329 billion, double the amount in 2010, according to the College Savings Plans Network, a coalition of state-run 529 plans.
“As of 2018, 529 plans can also be used for private K-12 education,” says Kate Stalter of US News. “While parents can withdraw up to $10,000 per student per year to spend on tuition, they cannot dip into their 529 to pay for additional expenses or activities.”
The 529 account model has a lot to offer the growing legions of trade school students too who successfully sidestepped the lure of liberal salons to join the technology ranks of tomorrow’s infrastructure workers. In What to Do With a 529 Plan If Your Kid Doesn’t Go to College, Donna Rosato wrote, “You can use money in a 529 at any institution of higher education that receives financial aid. That includes community colleges; technical, art, or music schools; vocational and certificate programs; trade schools; and continuing education courses.”
Do you want to study abroad instead? No problem: there are about 400 colleges in other countries that are 529-eligible. Leftover funds can be easily designated to another family member – although the catch is the same. They too must spend 529 savings on qualified expenses; such as tuition, fees, books, supplies, and computers, as well as room and board for students in school at least half-time. But it won’t cover costs like college application fees, personal living expenses, or transportation.
When it comes to the tradeoff between risk and reward, “most 529 program managers tilt their investment strategy toward U.S. stocks and bonds,” Ms. Stalter continued. While it less common for a plan to invest in one stand-alone mutual fund or to offer exposure to exotic corners of the market, she explained, “some plans include investment options in emerging markets, commodities and other sectors.”
Before going back to school do some homework on 529s. And, when it comes to customizing an investment program to help you meet your educational goals, do not hesitate to ask an investment professional to review your notes and validate your assumptions.
John Drachman is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.