What are the Disadvantages of the 529 College Plan?

While the 529 College Plan is a popular way to save for college, it does have its disadvantages. Let’s take a look at a few. 

One disadvantage of the 529 College Plan is that the funds can’t be used for pre-college expenses. With many other savings plans, you can use the money to pay for private school before college. The 529 College Plan can only be tax-free as long as it’s used for higher education. However, it can be used for post-graduate studies and some professional programs.

Another problem with the 529 College Plan is that it might limit the number of mutual funds you can choose from for investment purposes. With some other college savings plans, you can choose any mutual fund out there. Check the limits on your individual 529 College Plan to see what mutual funds are available to your investment. Make sure there are enough options for your 529 College Plan before you decide which plan to go with.

Like other ways to save for college, the advantages of this plan are often limited to educational expenses. If you withdraw money from the 529 College Plan and don’t use it for educational expenses, the money will be taxed and penalized. In order to avoid this penalty, many people will roll the plan over to a new beneficiary. This can be frustrating, though, if you want to leave the original beneficiary in possession of all the money in the 529 College Plan.