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529 Plans: Are They Worth It?

Most financial planners say: "yes of course".

A 529 savings plan is a specialized savings account made for accumulating money for college. Mostly, it's used by parents to help their children save up some money for college, rather than the child trying to figure out how to pay for it all themselves.

There seems to be this fascination with separating savings out into specialized accounts. We have one for health savings accounts, one for retirement-one pre-tax and one post tax, one for cash values of life insurance contracts, one for college savings, one for regular savings, a "Christmas Club" savings account, and so on.

All this diversification and compartmentalization comes at a cost: what happens if you don't end up using the money you put into these specialized accounts? Some of these accounts have penalties for not using the money for its intended purpose. The 529 plan is just such an account.

Personally, I don't like being told what I can and can't use my savings for, and since there's nothing special about the investments in a 529 savings plans, it's just as easy to find another tax free savings account that will do just as good a job at helping you accumulate money for your child's college education (if that's something you want to help them with) without all of the strings attached. 

Many of the so-called benefits and tax favors offered by Government-the 529 savings plan being one of them-come with a huge liability that, in my opinion, is just not "worth it".

This entry was posted on January 11th, 2010 by David C Lewis, RFC. Edits may have been made to keep this entry current. · No Comments · Investing

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