College Students

Frequently Asked Questions on Opening a 529 Plan Account

 
Frequently Asked Questions on Opening a 529 Plan Account529 plans are savings vehicles tailor-made for college. Anyone can open an account, lifetime contribution limits are typically over $300,000, and 529 plans offer federal and sometimes state tax benefits if certain conditions are met. Here are some common questions on opening an account.

 

Can I open an account in any state’s 529 plan or am I limited to my own state’s plan?

 
Answer: It depends on the type of 529 plan. There are two types of 529 plans: college savings plans and prepaid tuition plans. With a college savings plan, you open an individual investment account and direct your contributions to one or more of the plan’s investment portfolios. With a prepaid tuition plan, you purchase education credits at today’s prices and redeem them in the future for college tuition. Forty-nine states (all but Wyoming) offer one or more college savings plans, but only a few states offer prepaid tuition plans.

 
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How Does Your 529 Plan Stack Up Against the Competition?

How Does Your 529 Plan Stack Up Against the Competition?If you’re one of the millions of parents or grandparents who’ve invested money in a 529 plan, now may be a good time to see how your plan stacks up against the competition. Mediocre investment returns, higher-than-average fees, limited investment options and flexibility–these factors might lead you to conclude that you could do better with another 529 plan or a different college savings option altogether. You can research 529 plans at the College Savings Plans Network website at collegesavings.org. If you discover that your 529 plan’s performance has been sub-par, what options do you have?

 

Roll over funds to a new 529 plan

One option is to do a “same beneficiary rollover” to a different 529 plan. Under federal law, you can roll over the funds in your existing 529 plan to a different 529 plan (college savings plan or prepaid tuition plan) once every 12 months without having to change the beneficiary and without triggering a federal penalty.

 

Once you decide on a new 529 plan, the rollover process is fairly straightforward. Call your existing 529 plan to see what steps are required; some plans may impose a fee for a rollover, so make sure to ask. Then call your new 529 plan and establish an account; your new plan should have a process in place to accept rollover funds. You must complete the rollover to the new 529 plan within 60 days of receiving a distribution from your former 529 plan to avoid paying a penalty.

 

If you want to roll over the funds in your existing 529 plan to a new 529 plan more than once in a 12-month period, you’ll need to change the designated beneficiary to another qualifying family member to avoid paying a federal penalty. As a workaround, you can change the new beneficiary back to the original beneficiary later.

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When do I need to submit college financial aid forms?

 
When do I need to submit college financial aid forms?It depends on the form you’re filling out and whether your child is a new college student or a returning student.

 
College deadlines for the federal government’s financial aid form, the FAFSA, might be anywhere from February 1 to April 1 for both new and returning students. But it’s in your best interest to submit the FAFSA as soon after January 1 as possible (it can’t be submitted before January 1) because some government aid programs operate on a first-come, first-served basis.

 
The FAFSA relies on tax information from the previous year, so it’s helpful to have your tax return already completed. However, if you don’t, you can still file the FAFSA using estimated numbers and then go back later and update your FAFSA with final tax numbers once you’ve completed your tax return (the government offers an online tool–the IRS Data Retrieval Tool–that allows you to import your tax information directly into your FAFSA). The FAFSA captures two data points: the financial picture of both the parent(s) and the student for the previous year.

 
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I’m having trouble paying my student loans. Do I have any options?

I'm having trouble paying my student loans. Do I have any options?

If you or someone you know is having difficulty paying back student loans, consider investigating the government’s three income-driven repayment plans. These plans–available for federal student loans, not private loans–are designed to make student loan debt more manageable by reducing your monthly payment.

The first and newest program is called Pay As You Earn (PAYE). Under PAYE, borrowers pay 10% of their discretionary income toward their federal student loans each month, and all remaining debt is generally forgiven after 20 years of timely payments. Your monthly loan payment is based on your income, family size, and state of residence. It is readjusted each year based on these criteria.

The second plan is called Income-Based Repayment (IBR), which is similar to Pay As You Earn. Under IBR, borrowers pay 15% of their discretionary income toward their loans each month, and all remaining debt is generally forgiven after 25 years of payments. (For new borrowers who take out loans after July 1, 2014, the IBR terms are the same as PAYE.)

Both PAYE and IBR have an eligibility requirement before you can enter the plan. The payment that you would be required to make under PAYE or IBR (a technical calculation based on your income and family size) must be less than what you would pay under the government’s standard repayment plan, which is a fixed amount over a 10-year term.

The third plan is called Income-Contingent Repayment (ICR). The ICR plan does not have an initial eligibility requirement, so any borrower with eligible loans can make payments under this plan. Under ICR, your payment is equal to the lesser of 20% of your discretionary income or what you would pay under a repayment plan with a fixed payment over a 12-year repayment term. The repayment period is 25 years.

Under all three plans, loans are forgiven after 10 years for those in certain public-service jobs.

The U.S. Department of Education offers a Repayment Estimator calculator on its website www.studentaid.ed.govthat you can use to see whether you qualify for certain plans, and to compare monthly payments and total lifetime costs under different plans.

How can college students save and spend money wisely?

How can college students save and spend money wisely?

College is a pivotal time in a young adult’s life. Students gain a sense of independence that is accompanied by responsibility–especially when it comes to finances. If you’re a new college student, it can be overwhelming to figure out how to save and spend money wisely. However, if you take time to plan, you won’t have to worry about spending money carelessly. And your parents will be glad to avoid desperate pleas for cash over the phone.

It may be helpful to review campus resources ahead of time so you can eliminate items that you don’t necessarily need to bring with you to school. Why bring your car and pay for an expensive parking pass if you can use free public transportation? Similarly, it might make more sense to borrow textbooks from your university’s library or rent them rather than fork over the dough to buy pricey books you’ll use for a single semester.

Next, establish a monthly budget. Track your expenses for a month to determine where most of your money is going, then look for the areas where you need to reevaluate your spending. For example, you may be spending too much on take-out when you already have a prepaid meal plan at your school. Take advantage of your plan and put that money toward something else in your budget like clothing or entertainment.

What if you have excess cash? Set aside a few dollars each week to create an emergency fund. Over time, that money could accumulate, and you never know when it might come in handy.

But if you still find yourself strapped for cash, most college campuses offer a variety of part-time jobs that are designed to fit into a student’s busy schedule. Ask about a job the next time you go to the gym for a workout or the dining hall for a meal. Or you can use your school’s career service website to browse work-study options available on campus. As long as you’re aware of what’s available to you, you’ll be better informed to make wise money decisions, which enables you to focus on making the most of this chapter in your academic career.

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