Do you wonder how 529 plans impact Financial Aid, scholarships, and more?
Every parent loves his children and wants to help them in life. However, also not every parent know how to manage finances or has no information on how to provide their children with education in the best and simplest way.

You love your kids beyond words. It’s why you naturally seek out the best for them. However, it’s hard to choose between all this advice you hear. The most difficult is to separate the fact from myths.

How to do that?

One of the most frequently asked questions about College savings is “What are 529 plans, and how do they work?”

Well, here are the answers and facts related to this plan.
If you have asked this question yourself, do not worry. The latest research shows that 75% of parents are looking for the right answer. Why? Mostly parents for this financial instrument receive information directly from a financial advisor. The problem is that most Americans do not have a financial advisor and rely on rumors.

To avoid this, here are some facts:

• A 529 plan is an investing tool that makes it easier to pay for college. It helps you save money now and provide your child’s college future.
• The official name of this plan is “qualified tuition programs” (QTP). It authorized by Section 529 of the Internal Revenue Code. By this, he got a nickname 529 plan.

Also, you needs to know that there are two different plans from 529 prepaid tuition plans and 529 college savings plans.

What is a 529 plan for prepaid tuition?

States and private colleges offer prepaid plans. This plan allows parents to pay college fees at current prices. With this locked tuition, you need to participate in universities and slowly pay them off. The bad side is that you have to be sure which public university will attend your child

What is a 529 plan for college savings?

Offered by states, these investment plans let you choose from several mutual fund options. You can put your cash into stocks and bonds. Earning you made with 529 plan is not subject to federal tax, as long as you use the Money on college costs. Also, many states waive state taxes. Some of them even offer write-offs for the money you put in, which equals more savings.
All of this can confuse, so let’s clear some things.

How do 529 plans work? Time to bust some myths.

Do you think that having a 529 plan will cuts your financial aid?

Statistics show that kids will lose about 6% of their financial aid due to 529 plans.

Do 529 plans affect financial aid?

Yes, have a small impact on financial aid, but the money you save with a 529 can easily outweigh any potential loss of financial aid.
You need to know that financial aid is based on your assets.

Also, almost all college savings have some much aid your child is eligible for. How much money a child gets depends on how much money he has available. That’s why FAFSA uses EFC (Expected Family Contribution – calculates your assets)
The high asset result with high EFC. The higher the EFC, the less financial aid available to your child

Is it important who holds the actual account?

The financial aid reduction caused by a 529 plan depends on that. It will be considered as and family assets if parent) start the account and list your child as a beneficiary. In this case, you can expect that financial aid will be hit by 5.64%. So for example- if your 529 plan has $10,000 in it, your child would only lose $564. They would still get over 94% of the financial aid they qualify for.
As you see this represent a minor loss and savings from a 529 plan can it easily offset such a small decline.
Note: In case your child or other members of the family, is holder instead of you, the 529 impacts to financial aid could go as high as 20%.

What happens if you don’t use 529 money for college?

If things don’t go according to plan, there are many ways to use your 529 money.
If your child changes opinion, don’t worry because 529 plans have rollover rules and other options built-in. Here are a few possible scenarios:

Your child receives a full scholarship. What to do in this case? Does a 529 plan affect scholarships?

Nope. 529 plans and scholarships are 100% compatible. That means that because of scholarships you don’t need money from 529. Because of that, you don’t have to pay the usual 10% penalty fee for not using the 529 money on college. You pay the back income taxes at your regular tax rate and then withdraw the available money. You can still transfer savings to your child. It can be used for car or some other investment.
If your child receives a partial scholarship, it will be a good idea to speak with your 529 plan manager.

Your oldest skips college for the workforce.

If your child doesn’t go to college (or has extra funds after college), 529 plan rollover rules can benefit your other children. Just name your next oldest child as the beneficiary and let them take advantage of those savings. There’s no tax penalty either, so your entire fund is still intact and usable.

If you have only one and know someone whose college-bound, in this case, if you want, you can easily transfer 529 plan savings to another beneficiary, any U.S. a Social Security number can be named as a beneficiary for 529 college savings plans. That including yourself. That is your money, and you can do with that money wherever you want.

Alternatively, if you need money for something else, instead of college, maybe you want to put cash somewhere else, perhaps in the stock market. In this case, you need to pay the 10% penalty fee and back income taxes. After that, you can do what you want with the money you’ve saved up. You can take that dream vacation, or put it toward your retirement savings.

Can I have more than one 529 plan for my child?

YES! Your child can have multiple 529 plans.

One of the frequent questions is: How many 529 plans can I have? It depends primarily on you and how much plans you need at all. It is a fact that regardless of the place of residence, you can have plans in 44 different countries. Of course, most people will not come to that number, but it’s essential to indicate that there are so many options. Why do you want more than 529 plans at all? What are the reasons for this?

Many factors can influence this decision. The decision can depend on your investment strategy, from the child’s age. For example, plans that take into account the age of your child at the startup invest more aggressively while they are young, and then conservative while they are close to college age to get the best return.

Timing. On the flip side, having two 529s can also be helpful if your kids are in college at the same time. College costs are only waived for the beneficiary of the 529. If you’re using the same 529 for a second, unnamed child, their costs will incur a 10% penalty fee unless he or she was the beneficiary of a separate account.

Diversity. A 529 prepaid college tuition plan only covers tuition and fees, so having a second 529 college savings plan for costs like books or housing can help you cut out-of-pocket expenses.8 That’s more money to save for other things—like a plane ticket to visit when they’re homesick.

Savings. Similarly, if you’re going to open a 529 prepaid college tuition plan at a private college, having a 529 college savings plan can help you save even more money through added tax benefits.

Limits. 529 plans do have contribution limits, also though most are very high. Still, if we’re talking undergrad, grad school and then medical school, having multiple 529 plans means there’s virtually no contribution limit.
Generally speaking, more money invested in your 529 college savings plans means higher earnings and savings in the long run.

So the next time you come across some questionable advice, you know what to do: Take a closer look at the source. For questions like “what is a 529 plan” and other savings advice, turn to a trusted name in savings. Your child’s future is important.