Parents need to know about 529 college savings plans

  • By Michelle Singletary
  • Thursday, May 22, 2014 3:49pm
  • Business

When I see college graduates celebrating their achievement, I can’t stop wondering about all the loans many will be paying off for years to come.

But it also makes me relieved that my husband and I set up 529 plans for our children.

This is why I’m celebrating 529 College Savings Day on May 29 (get it, 5/29?). And the best thing is, I don’t have to buy a greeting card.

Nevertheless, I was surprised to learn that most people aren’t even aware of this vehicle to save for college, even those who are likely to have the income to make this investment. For the last three years, the financial firm Edward Jones has commissioned a survey to gauge what Americans know about 529 plans. The survey found that only 30 percent of survey participants could correctly identify what a 529 plan is about. And the awareness is dropping. In 2012, 37 percent of respondents correctly identified a 529 plan from among four potential options. Some thought it was a retirement account, a form of life insurance or a low-cost health care plan. Among those with a household income between $50,000 and $75,000, awareness was only marginally better at 32 percent. Awareness levels increased when income increased, but it still wasn’t as high as it should be. Forty-two percent of households with income between $75,000 and $100,000 could identify a 529 plan, and only 48 percent of Americans making more than $100,000 answered the question right.

Here’s how a 529 plan works. There are two types: prepaid and savings plans. The advantage to the plans is that earnings are not taxed if the funds are used to pay for qualified college expenses. In most cases, earnings are also free from state and local taxes. There are no income limitations on who can contribute to an account. And I particularly like this feature — the account owner maintains control over the money.

A prepaid tuition plan allows you to pay a child’s tuition in advance. The point is to lock in for tomorrow at today’s rate. However, be careful about funding a prepaid plan and thinking you are done. It covers only tuition and fees. What if your child wants or needs to live on campus? Room and board alone can be as much as tuition.

The 529 savings plan is the most popular. With this plan, you invest much like you would in a workplace 401(k). This means your returns are based on how your portfolio performs over the years. Most 529 savings plans offer age-based investment options in which the investments become more conservative as the beneficiary gets closer to college age. This is what we have selected for our children.

Every state and the District of Columbia offer at least one type of 529 plan. Although the 529s are state-sponsored, you can invest in any of them regardless of where you live. Many states offer a tax deduction for residents who use their state’s plan.

Start your research about 529 plans by going to the one run by your state. (For Washington state residents, the place to go is www.get.wa.gov.) Here are two other websites that provide a lot of good information — www.collegesavings.org run by the College Savings Plans Network, and www.savingforcollege.com.

On savingforcollege.com, you’ll find a quarterly analysis of the best and worst 529 plans based on short-term and long-term investment performance. If you have questions about 529 plans, register for a live one-hour webcast at 10 a.m. Thursday (PDT) hosted by savingforcollege.com.

When it came time to pay for my daughter’s tuition, fees and room and board each semester this school year, I simply made a telephone call. It took less than 10 minutes to process the payments to her school.

Each time, the customer representative ended the call by asking, “Is there anything else I can do for you?”

“Nope,” I said, breathing a big sigh of relief.

(c) 2014, Washington Post Writers Group

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.