According to a recent CNBC.com report, for only the second time ever, families are taking more money out of 529 saving plans than they’re putting in.
This would seem like a small blipexcept the first time it ever happened was just recently as well.
The reasoning is simple enough. The economy remains weak fewer people feel secure in their jobs, so savings are going towards more immediate concerns, and more liquid accountsand a number of families are reconsidering how much they’re willing to spend on college.
In just the last year, family contributions toward tuition dropped from 47% to 37%.
All of these are big factors – but the biggest is probably faith in the markets.
Plenty of families got burned by the market crash in 2008. And, while the Dow and S&P have rebounded a bit, keep in mind that – over the past decade, investments in stocks have been flat. Over the past five years, investments in stocks have lost money.
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Considering 529s are very heavily invested in stocks – and that the life span of a 529 tends to be short and finite, ending when children go to college – people are, without question, looking at other sources of savings and growth. People want certainty when saving and paying for college – they don’t want to take the unnecessary risk that doesn’t seem to pay off anymore.
This isn’t to say that you should completely abandon 529s (However, I, personally, don’t want my college savings tied up and placed in the stock market), as they do have some advantages – such as tax-free withdrawals of gains for education purposes and state tax breaks for contributions (on some plans).
But it’s wise to know all your options. You’ll have to decide if you want your college savings at risk, or if you want the certainty of knowing it’ll be there when you need it to be. Do you want the money to be liquid, in case opportunities or emergencies arise or do you want it tied up? Do you care if it counts against you for financial aid ,or would you rather it be protected from the financial aid formulas? These are all things you need to ask yourself.
There are a number of options available to you – but the most important part is to figure out your best course of action as soon as humanly possible. College will be here before you know it and you want to make sure you’re on the right path well before you apply for college aid.