A lot of 529 plans have hidden (and needlessly high) administrative fees built into them. And even though a lot of plans have “thousands” schools in them, there’s always the chance your kid won’t want to go to ANY of those schools for various reasons.

I have a new baby and I’m steering clear of 529 plans until they consolidate or clean up their act. At this point I’m better off just putting money away into a high yield savings or mutual fund or some other investment without locking it into the 529 trap.

Every time we turn around there’s another program that makes it easier for universities to raise their prices 3 times the rate of inflation. At least this one directly and immediately involves one’s own money so there is some slight potential for consumer pressure on price (very slight, however, since the money you save can only be used for education w/o penalty. Thus you’ll have less incentive to spend whatever you save wisely since you’ve got no alternative options).

Does anyone shudder at the notion of needing $200,000 for a college education? Is it really worth that much?

One other option, WV’s 529 plan is the one of the few ways you get access to DFA funds without a big lumpsum of money under control of an asset manager.

Louise, I wrote a post about that should answer the question you asked, but basically there are two types of 529s: savings plan and prepaid. The savings plan is treated as a parental asset (that’s good for financial aid purposes) and a prepaid plan is treated as a ‘resource’ (that’s bad – it reduces financial aid dollar-for-dollar).

k, you can totally save in your name for grad school and if you decide not to go, you can later change the beneficiary to your child-to-be.

1) The account is NOT covered by the FDIC at all. The account may lose money including the principal invested and no government agency nor the fund manager is liable.

2) The amount that is withdrawn does have an affect on the Financial Aid for the student especially in the 2nd year because at that time the students tax return will have the 1st years withdrawal.

Are all 529 plans not have any protection? These are only 2 negatives compared to the many positives but just thought I’d mention what I read.

-Mukesh

Now a big point that Trent left out was the impact of grants / scholarships on the 529 account. During my research, I found that any grant/scholarship monies received can be match withdrawn from the 529 account without penalty.

I may have missed it in Trent’s article, but much like a 401k, the 529 has a penalty associated with it, beyond the state/federal taxes upon withdrawal. In the event of a withdrawal not for “educational use”, there is a 10% penalty incurred. Meaning that withdrawing $1000 from the 529 will actually end up costing you $1280 (if you live in Texas), and even more in a State with State Income Taxes.

However, if we save up $200,000 in this account over 18 years, and my son gets a full ride to school, we can match the amount of those scholarships to take out of the 529 penalty free.

What are the differences between a 529 and an ESA (education savings account)? A place like Vanguard offers both.

How long have you been contributing to your 529s? Like with retirement, is it best to start as early as possible (as in as soon as you know you will one day have kids)?

Rebates earned by all of us using Upromise can be automatically invested in Iowa’s 529 plan on a quarterly basis.