The built in tax-advantaged attributes of the 529 plan for college savings becomes very appealing to parents who are trying to save a college education.
The 529 plan offers parents the ability to contribute funds to state-operated investment plans that allow those funds to grow tax-deferred. Once it is time for college, the qualified withdrawals are tax-free. In addition, some states offer tax breaks on the money contributed to the 529s during the year.
Sounds like a dream, right? Here are four drawbacks to the 529 plans:
- High fees
- Limited investment options
- Impact on financial aid eligibility
- Taxes and penalties
A recent article from U.S. News and World Report described this in further detail.
If you have any questions about saving for college for your family, asset allocation, or the 529 plan, please contact the financial planning experts at Apex Financial Advisors.