529 Plans: The Good and the Bad and The Market Exposure

The federal formula for assessing how much a family can pay for college is strictly focused on the finances of parent and child. So 529 plans opened by grandparents go uncounted in the federal calculus. In distributing their own aid, however, colleges often look at all 529 plans that name the student as beneficiary. So even if the strategy works for the federal-aid calculation, it won't necessarily work for the institution's own aid assessment. - From Wall Street Journal; December 18th, 2006

Here are a couple of lines taken from CSS Profile, Section Q

#521) Enter the total value of assets held in Section 529 college savings plans that were established for the student by someone other than the student’s parent(s)

#523) Enter the estimated amount that will be withdrawn for the student for the 2017-2018 academic year from Section 529 plans established for the benefit of the student.  If you own a 529 Plan, make sure you have a competent college funding advisor examine it BEFORE you apply for financial aid.

One last thought: 529 Plans are often funded with mutual funds and ETFs. A lesson learned during the “lost decade” (2001-2010) is that markets are volatile. The S&P 500 Index lost four times in that ten-year period. You need to understand your risk tolerance and more importantly when you need the money. Many families saving for college were financially hurt during this period and had to significantly alter their college plans. Longer timelines like 12 to 15 years is preferable for market driven funds. It’s your life. It’s your time. It’s your money.

^{John McDonough has contributed to this press release. Segments in part or whole are from his publications.}