Too many parents put too much focus on the tax breaks, and not these essentials:
As New Year’s approaches, people are thinking about what they could do in 2020 that they didn’t do in 2019.
Moreover, the average 529 balance — $25,000 — won’t even cover one year’s tuition and fees in the average private college and would just barely pay for a year at an out-of-state public university. But don’t let that be the sole reason you pick your state’s 529 plan. Morningstar rates 529 plans , and it recently awarded gold to plans from California, Illinois, Utah and Virginia, plus silver ratings to 529s from 11 other states. Pick the best one for you.
But if it’s in the name of, say, an aunt, uncle, grandparent, or noncustodial divorced parent, the assets don’t get factored in, but the “distributions count as untaxed income to the beneficiary, which can reduce aid eligibility by as much as half of the distribution amounts,” Kantrowitz warns. So, if you withdraw $10,000 from such an account to pay for college expenses, that could reduce your child’s need-based aid by as much as $5,000 a year. Ouch. Please avoid such a big, unnecessary hit.
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