Q: As a grandparent of six grandchildren I was wondering if a 529 is worth investing in for them? Should I create six different 529s or have one and then change beneficiaries every few years? Giving each the same amount if they choose to go to a technical college or university? Would I be paying a fee for six different accounts so better to have one account? What are my maximum amounts allowed? I live in Minnesota.
A: A 529 plan is an attractive option. The account can be opened in most states with less than $100 (with a maximum of several hundred thousand). The account is funded with after-tax dollars. The money grows tax-deferred. Withdrawals are tax free so long as the money goes toward qualified educational expenses, such as tuition and books. You will want to check out any state tax benefits attached to 529 plans.
What’s more, the money is available tax free for any qualified postsecondary institution — public university, classic liberal arts college, community college, many foreign universities, qualified vocational school and so on.
You can own an account in any state and the savings can be spent at any accredited institution in any state. It’s a judgment call, but since you probably don’t know what kind of school is best for each grandchild I would fund them with the same amount of money.
To simplify plan choice, it’s usually cheaper to buy a 529 plan sold directly by the state. Most of the plans sold through broker-dealers are more expensive. The appeal of establishing one plan and keep fees to minimum is understandable. But the 529 system is easier to navigate with separate accounts and there are ways to keep fees low.
My most important suggestion is to coordinate any 529 plans with the parents — your children. You want to make sure everyone is on the same page. The favored strategy is to have the parents open the account in their name with the grandchild as the beneficiary. You contribute money into the account. The federal financial aid formula treats a grandparent-owned 529 plan less favorably than a parental-owned one.
With the space available to me in this column I can only touch on a few basics with 529 plans. These are complex products. A good resource for research is Savingforcollege.com. The financial rating company Morningstar.com has detailed financial information on 529s. FinAid: The Smart Student Guide to Financial Aid is another online source of advice
Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.