Common mistakes people make with their 529 college savings plan

529 plans are tax-advantaged investment plans intended for covering future higher education costs for a named beneficiary. These investment vehicles, which may be run by a state, a state agency, or an educational institution, allow account holders to invest in bonds, mutual and index funds, and money market funds to pay for their beneficiary’s eventual college tuition and expenses.

Image Source: optimataxrelief.com

 A lot of people who invest in a 529 plan often forget to take note of factors such as additional fees and certain conditions. The following are some examples:  

Eschewing gift tax exclusion

Image Source: kiplinger.com

Because contributions to a 529 are considered gifts and are tax-free, grandparents can pitch in as much as $70,000 to initiate their grandchild’s education plan, allowing them to save on their own estate tax. However, ‘front-loading’ a 529 like this prohibits subsequent contributions for the next four years.  

Neglecting adjustments

529 plans usually allow for yearly adjustments. If, for example, the account spans 18 years, this time frame can be maximized to reap the most return on investment. The first few years of a 529 can be managed to emphasize higher yield and higher risk equities. The middle years can add bonds, index, and mutual funds, and the last few years can focus on money market funds.  

Putting things off

Image Source: forbes.com

Two or three years won’t garner much when one faces tens of thousands of dollars in academic expenditures. Investing early, even before having children, is best. If the intended beneficiary decides to skip college, the account can be transferred to benefit the sibling or some other aspiring college student. Withdrawing the account and reinvesting is also allowable for 529s.  

Michael Lewis, Haskell Indian Nations University CFO since 2004, has over two decades of experience in the world of cost accounting, budgeting, and finance. More information on his career is available here.

Dimes for diplomas: The lowdown on federal student loans

With college tuition fees ballooning each year, it’s not uncommon to fret over school expenses. Luckily, America takes pride in being “the land of opportunity,” and the federal government grants loans specifically for this purpose.

Image Source: www.cnn.com

The following are the types of federal college loans offered by the US government:

Direct subsidized and unsubsidized loans are based on a student’s standing in college. In direct subsidized loans, the government pays the interest while the student is in school and for the first six months upon graduating. Direct unsubsidized loans, meanwhile, require no proof of financial need, but the student shoulders the interest while in school. Though payments are deferrable for both, interest accrued gets added to the principal balance.

Image Source: www.gocollege.com

Direct PLUS Loans are for graduate or professional degree students or to parents borrowing on behalf of their undergraduate children. These loans have a fixed interest rate, and students or parents who meet certain requirements via the Free Application for Federal Student Aid form and who have good credit history are eligible.

Image Source: www.gocollege.com

Perkins Loans, a program between the government and participating schools, are available to undergraduate, graduate, and professional students with exceptional financial need. The school is the lender here, and the amount borrowable is determined by both the student’s financial needs and the school’s available funds.

Michael Lewis, Haskell Indian Nations University’s CFO, has 20 years of experience in financial planning and has worked with the Oklahoma Air Logistics Center and the US Marshall’s Service in Kansas City. More information about him can be found here.