Quick Answer: Does A 529 Hurt Financial Aid?

Is the 529 plan worth it?

Many people saving for college choose 529 plans as their investment vehicles, and that’s for good reason.

529 plans offer tax advantages that can help you allocate even more dollars to education expenses.

There are a variety of plans available, and you’re not limited to just your own state’s plan..

Why a 529 plan is a bad idea?

A 529 plan could mean less financial aid. The largest drawback to a 529 plan is that colleges consider it when deciding on financial aid. This means your child could receive less financial aid than you might otherwise need.

What’s better than a 529 plan?

A 529 savings plan is one of the best ways to save for a child’s college education, but there are alternatives. … Custodial UGMA and UTMA accounts can be used for purposes other than education. Roth IRAs have tax advantages similar to 529 plans and they don’t count as assets for financial aid purposes.

Do I need 529 for each child?

While it’s technically possible to use one 529 plan for multiple children, rather than making things simpler, it actually makes them more complicated. From beneficiary rules to investment strategies to ultimate fairness, having a separate 529 account for each child is the preferred way to go.

Can I buy a computer with 529 funds?

Can you use 529 funds to buy a computer? … Savings can indeed be used to buy a computer or pay for internet access as a qualified higher-education expense. An iPad used for college would also qualify, as would any related peripheral equipment, such as a printer.

Do I have to put my 1098 T on my tax return?

No, you don’t have to report your 1098-T, not unless you want to claim an education credit. However if your grant/scholarship amount (box 5) is more than your tuition (box 1/box 2) you may want to report it because excess scholarship money may be treated as taxable income on your return.

Do 529 plans get reported on fafsa?

A 529 college savings plan account that is owned by the student or the student’s parent must be reported as an investment asset on the Free Application for Federal Student Aid (FAFSA). Distributions from such a 529 plan are not reported as income on the FAFSA.

Can a 529 pay for health insurance?

You cannot use a 529 plan to pay for health insurance. … A 529 plan withdrawal used to pay for health insurance or other medical expenses is considered a non-qualified distribution. The earnings portion of a non-qualified distribution is subject to income taxes and a 10% penalty.

What does the 529 college savings plan cover?

Money saved in a 529 plan can be used to pay tuition and fees associated with college or graduate school. Eligible schools include any postsecondary educational institution eligible to participate in the federal student aid program administered by the U.S. Department of Education.

Does 529 withdrawal count as income?

When you follow the rules and guidelines on how to use your 529 plan, money in the account does not count as income on your taxes. … However, if you accidentally use the funds on ineligible expenses or make a withdrawal, the 529 distribution may be subject to a penalty fee and taxes.

Is it better for a parent or grandparent to own a 529 plan?

— Instead of opening a 529 themselves, grandparents can contribute to a parent-owned 529 plan, which reduces eligibility for need-based financial aid only up to 5.64 percent of the net worth of the assets. — Grandparents can open an account and reap any state tax deductions for themselves.

What is the best account to save for college?

529 Plan. If you want to save more for your children’s college education, or if you don’t meet the income limits for an ESA, then a 529 Plan could be a better option. Look for a 529 Plan that allows you to choose the funds you invest in through the account.

Can I use my child’s 529 for myself?

Regardless of your age, you can set up a Section 529 plan for yourself to fund educational expenses now or in the future. … You can apply the funds for tuition, books, fees and even a computer, as long as it is used to further your studies.

Can you use 529 to pay off student loans?

A new law allows borrowers to use 529 college savings plans to pay off student loan debt. … Families contribute money after taxes to these accounts, which grows on a tax-deferred basis and can be withdrawn tax-free if it’s used to pay for qualified education expenses.

Who offers the best 529 plan?

Best 529 plans New York’s 529 plan, Direct Plan. Wisconsin’s 529 plan, Edvest. West Virginia’s plan, Smart 529 WV Direct College Savings Plan. California’s plan, ScholarShare 529.

What can I do with leftover 529 money?

6 ways to spend leftover 529 plan moneyTransfer the 529 plan funds to another beneficiary. … Save the 529 plan funds for your child’s future educational needs. … Use the money to make student loan payments. … Save the 529 plan for a grandchild. … Take advantage of penalty-free scholarship withdrawals.More items…•

How do I prove 529 Expenses?

Reporting 529 Plan Withdrawals on Your Federal Tax ReturnWhen 529 plan funds are used to pay for qualified education expenses there is usually nothing to report on your federal income tax return. … IRS Form 1099-Q is a statement issued by a 529 plan or Coverdell ESA administrator that lists the amount of distributions in a given tax year.More items…•

Does a 529 plan reduce financial aid?

The value of a 529 plan owned by a dependent student or one of their parents (529 plans do not allow joint ownership) is considered a parental asset on the FAFSA. … Any parental assets beyond that amount will reduce a student’s aid package by a maximum of 5.64% of the asset’s value.

What are the disadvantages of a 529 college savings plan?

Disadvantages of using a 529 plan to save for college529 plan funds must be spent on qualified expenses to avoid tax and penalty. Non-qualified distributions are subject to income tax and a 10% penalty on the earnings portion of the distribution. … 529 plans owned by a third-party can hurt financial aid eligibility.

What happens to a 529 if the child does not go to college?

A 529 account can be used for other types of education besides college, including trade and vocational schools. … However, if you decide to use the money for something other than qualified education expenses, you will have to pay income taxes plus a 10% penalty on the earnings.

Is now a good time to open a 529?

Now’s a good time to invest in a 529 plan and increase your contributions using an investment strategy called “dollar cost averaging,” Kruger advised. … The effect is that you buy more of an investment when prices are low and less when costs are high.