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Five Myths about 529 Savings Plans

When it comes to personal finance for college education, 529 savings plans are often recommended to parents or guardians. While these are quite popular and available at a number of financial institutions, there are still myths about 529 savings plans that may make your decision to start one more difficult. In order to make the best choice for you and the student, explore these myths and find out the truth about these helpful financial tools.

1 – 529 Savings Plans Are Only For College Tuition

Although tuition may represent the highest percentage of qualified educational costs, the money you save in a 529 savings plan can also be put toward room and board, the cost of books, laboratory fees, and any other equipment necessary for completion of the classes and degree program. ( This can even include a computer, academic-related software, and a portion of Internet costs. It is also important to note that you do not need to use the funds in your account in your residential state or for public universities only, although these choices may come with additional benefits like tax exemptions and matching grants.

2 – People With High (or Low) Incomes Cannot Use 529 Savings Plans

It does not matter how much money you make every year if you want to save for your child's education. People from all walks of life can sign up for a 529 savings plan and reap the same benefits. They are not specifically for high-income families with a lot of financial freedom. Nor are they for low-income families who struggle to make ends meet.

3 – You Lose Your Money If They Don't Go to College

Not every child grows up and attends college even if their parents really want them to. While 529 savings plans can also help with certain trade schools or certificate programs, you never lose the money if they transition from high school to work right away. Your options include naming another beneficiary to receive the money for education or taking all the money out yourself. Like with most investment accounts, you will need to pay taxes on the income earned over the lifetime of the account if you do this.

4 – The Money Becomes the Student's Property

It doesn't matter if your child reaches the age of eighteen, signs up for college, or makes any other decisions with their life. The 529 savings plan money always belongs to the person who opened the account in the first place. It does not automatically transfer to the school or change in any way. You control it and have all legal rights to it for the lifetime of the account.

5 – You Will Not Qualify for Other Financial Aid

Every family or individual interested in receiving financial aid must fill out the Free Application for Federal Student Aid (FAFSA) form every year. Although you do report your 529 savings plan in the application, it does not preclude you from getting other student loans or scholarships. In this, it is just like any other bank account or invested money that you could put toward educational expenses. If your child is older or emancipated and applying for aid as an independent student, the 529 account in the parent's name may not affect the process at all.