Saving for College

[jofo]

I could be remembering this wrong, but I'm pretty sure there is no penalty for taking out contributions for any reason (not just college), the penalty would be on earnings (you would have to pay tax + 10% I believe instead of getting tax-free and penalty-free earnings withdrawals if used for college expenses).

I also think I read the 529 counts as a parent asset, NOT a child asset when figuring out financial aid (even if the account has the child listed as a beneficiary).

 

[cats mom]

I could be remembering this wrong, but I'm pretty sure there is no penalty for taking out contributions for any reason (not just college), the penalty would be on earnings (you would have to pay tax + 10% I believe instead of getting tax-free and penalty-free earnings withdrawals if used for college expenses).

I also think I read the 529 counts as a parent asset, NOT a child asset when figuring out financial aid (even if the account has the child listed as a beneficiary).

Yes, the 10% penalty and federal income taxes are paid just on the gains on a 529 if it is used for anything other than higher education. That may not be much of an issue for some, but if the money has been accumulating long term, and/or has done well, it could be quite a hit. There may be other state or local tax or penalties as well. Everyone needs to check their individual location for that.

I'm not very well versed on financial aid, but starting with the 2009/2010 year I'm pretty sure custodial 529 plans are listed as a parental asset if the child files as a dependant, but as a student asset if the child files as an independant student, at least on FAFSA forms, the CSS Profile has it's own set of rules if you have to fill that out.

Of course the rules and regulations are complicted and are ever changing... so who knows what the deal will be 8 years from now when the OP is ready to really dive into the oh-so-fun world of college funding.

 

[deerhart]

I have to say that our 529 plans did take a hit (we didn't have that much money in them) but have rebounded and are positive now. My rate of return on both the 529 plans and my dh's 401(k) was over 35% last year.

My grandmother buys the kids a $50 savings bond each year for birthday and christmas and other special occasions. Thus each child will have about $2,000 in savings bonds by the time they hit college, plus the 529 plans, plus any other money we eventually put towards college.

In the long run, DH hopes to have a job where part of his benefits would be to foot part of college expenses. Our state also has a program where kids can get free tuition at a community college for two years as well