Get Schooled in Saving for College
Take Our 529 Quiz
Assets in 529 plans grew from $2.6 billion in 2000 to $138.2 billion in 2010, according to data compiled by the Investment Company Institute. But despite the apparent popularity of the tax-advantaged college-saving vehicle, certain aspects still trip up even the savviest savers. Check your knowledge by taking our 529 quiz.
TRUE or FALSE
You can invest in any state's plan.
TRUE. You can invest in practically any 529 plan from any state, although some plans offer state tax and other benefits to in-state participants. It pays to do your homework, and to choose a trusted investment manager.
529 assets can only be used at schools in the sponsor state.
FALSE. You can use 529 plan assets at any eligible school in any state, including two- and four-year colleges, graduate schools and vocational/technical schools.
There is no income limit on participation.
TRUE. Unlike other savings vehicles, such as IRAs, 529 plans do not limit or prohibit participation based on a high-income threshold. Anyone can invest.
If the beneficiary does not attend college, you lose the money.
FALSE. The 529 plan account owner, not the beneficiary, controls the account. This means you can change the beneficiary to another eligible family member if the named beneficiary does not require the assets. Notably, there are generally no time or age limitations on the use of plan assets, so the assets can remain in the account and grow in perpetuity.* Worst case, plan assets can be returned to the account owner as a non-qualified withdrawal, but earnings will be subject to ordinary income taxes, as well as a 10% federal penalty.
Scholarship earned, 529 assets lost.
FALSE. Assets can be returned to the 529 plan account owner as a non-qualified withdrawal. While the earnings will be subject to your ordinary income tax rates, the 10% federal penalty would be waived in this instance. Of course, you could opt to change the beneficiary to another eligible family member.
You don't need to be a parent to participate.
TRUE. Anyone can open an account for any beneficiary, child or adult. Many grandparents are choosing to open 529 accounts for their grandchildren, and this can be beneficial from a financial aid perspective since, often, 0% of grandparents' assets are factored into financial aid calculations. Another tip: Some "super savers" choose to open an account in their own name prior to having children to get a head start. They subsequently change the beneficiary designation once a child is born. Typically, there are no tax implications for changing a beneficiary on a 529 account.
Sorry, only one plan per beneficiary.
FALSE! There can be multiple accounts for the same beneficiary. This might mean two accounts in the parents' name or one in a parent's name and perhaps another in a grandparent's name in a different state. This can be a useful tool for maximizing state tax benefits, where available. The amount that is eligible for a state tax deduction is subject to an annual cap, so you might want to contribute the max to a state plan first, then invest any excess in another favorite plan to diversify your exposure and spread your investment risk.
BlackRock CollegeAdvantage™ 529 Plan†
Invests in actively managed mutual funds, with three distinct approaches to choose from: single-strategy investment options (you choose your investments); age-based investment options (rebalanced based on the beneficiary's age/ college start date); and target-risk investment options (static risk profile based on your savings goal). To learn more, visit www.blackrock.com/collegeadvantage or speak with your financial professional.
* Virginia's 529 plan has a 30-year limitation on use of assets.
† The BlackRock CollegeAdvantage 529 Plan is designed to be a Qualified Tuition Program under Section 529 of the Internal Revenue Code. The Plan is sponsored by the state of Ohio.
Archived articles are current as of the original date of publication.