Q. I am considering opening a 529 account for my child, but I heard it will hurt my child's chance of getting financial aid later, is it true?
A. Yes it is true, but there are a few factors you need to consider.
First, the impact is not that big
A 529 plan is owned by the parents, the child is just the beneficiary. For parents' assets, only 6% will be considered for affordability calculation. Its impact is a lot less than any college fund account that is owned by the child directly.
Second, most of financial aid is not free
You might be worried that with more assets, your child's chance to get financial aid is lowered. However, please keep in mind most of financial aid is in the form of loan, not free.
Third, asset is a less important factor
Even with less assets, your child's chance of getting financial aid is not higher, because income's impact is far greater than assets. So for a high income family, even it has a high expense and with little assets, the chance of getting financial aid is still small.
Finally, don't expect the college will fully support your child's education needs
Based on some survey results, less than one third of public colleges and less than 20% of private colleges will match 100% of a student's financial needs. In the end, it is still you, the parents' responsibility to get your child through the college life.
The bottom line
If your state offers tax benefits for contributing to 529, definitely contribute to it. If not, you should shop around and find another state that offers a good 529 plan and invest in it.
A. Yes it is true, but there are a few factors you need to consider.
First, the impact is not that big
A 529 plan is owned by the parents, the child is just the beneficiary. For parents' assets, only 6% will be considered for affordability calculation. Its impact is a lot less than any college fund account that is owned by the child directly.
Second, most of financial aid is not free
You might be worried that with more assets, your child's chance to get financial aid is lowered. However, please keep in mind most of financial aid is in the form of loan, not free.
Third, asset is a less important factor
Even with less assets, your child's chance of getting financial aid is not higher, because income's impact is far greater than assets. So for a high income family, even it has a high expense and with little assets, the chance of getting financial aid is still small.
Finally, don't expect the college will fully support your child's education needs
Based on some survey results, less than one third of public colleges and less than 20% of private colleges will match 100% of a student's financial needs. In the end, it is still you, the parents' responsibility to get your child through the college life.
The bottom line
If your state offers tax benefits for contributing to 529, definitely contribute to it. If not, you should shop around and find another state that offers a good 529 plan and invest in it.
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