5 Reasons why 529’s are a waste of time
Unless you are getting other people like grandparents to contribute money to your child’s 529 they are a waste of time for the following reasons:
1. They reduce the amount of endowment “free” money students can qualify for: Ex. With $100,000 in a 529 the first $25,000/year is on you!
2. High fees, charges and broker commissions: Most 529’s have front or back end charges as well as annual fees regardless if it’s making money.
3. Exposure to stock market fluctuations: The market can go down 50% during your student’s high school senior year and the money is gone with no time to recover.
4. Limited fund and investment choices: Most states have only 1 fund family to choose from. If you choose a different fund family odds are you will lose your resident state’s income tax deduction.
5. What happens if your only child gets a scholarship?: All funds withdrawn in this scenario would incur a 10% withdrawal penalty.
There are several other options as to where to stash money and how to pay for college that won’t have market risk or adverse effects on potential scholarship money.