Question 1

How much can you contribute to a 529 plan?

Accepted Answer

When it comes to funding a child’s education, it’s typically a good idea to make sure you’ve first paid off any debt, such as credit cards or parent-student loans, and are maxing out retirement accounts. After all, students can receive loans for their education, but no one else will foot the bill for your retirement. You can find useful guides to help you budget wisely at each decade of your life.

When it comes to how much a parent can contribute each year, it’s the $15,000 max per individual per the IRS’s gifting limits for 2020.

Question 2

Can you lose money in a 529 plan?

Accepted Answer

Just like any investment, a plan’s value can fluctuate with markets, but it tends to rebalance over time. Karen Vibe said some parents don’t like 529 plans because they’re managed by a fund, so they’re less dynamic.

“The risks are you don’t pick your stocks or manage your investments,” she said. “It’s not strategic in any way. It is invested in the market and will fluctuate in value, so people have to understand that.”

Question 3

What if you don’t use your 529 plan?

Accepted Answer

If a student doesn’t use the funds in his or her plan, you can transfer the funds to a sibling or cousin. You can also use the funds at any eligible institution of higher education, which includes four-year colleges and universities, two-year associate’s degree programs, trade and vocational schools and study abroad programs. The beneficiary could even keep the funds in the account until they have children and transfer the funds to them.

As a last resort, parents could withdraw the funds from the account and pay the 10% tax penalty plus federal income tax on the assets in the fund come tax time.

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Saving for Your Child’s Education: 529 College Savings Plans

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