When and Where to Get College Savings Advice

Middle-class families opening a 529 plan may want to check with a tax professional first.

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Signing up for a 529 plan, a tax-advantaged college savings account, is pretty easy.

Applications for a direct-sold plan, which is purchased from the plan's sponsor or program manager, can take minutes and some states allow plans to be opened with as little as a penny. Many plans have options available where investments change automatically as children age.

However, there are times when families have complicated tax or financial aid questions that require advice before they open an account or if their situation changes.

Experts offer suggestions for where and when the following types of savers should seek advice.

[Understand who can benefit from a 529 plan.]

1. Middle-class savers opening an account: Parents who are considering opening or who have just opened a 529 plan should seek out information about a savings strategy and the account's tax implications.

"The tax deduction is going to be extremely valuable," says Stacy Francis, a New York-based certified financial planner.

She suggests middle-class families check their state treasury department's website for tax deductions and tax credits. In addition to state tax benefits, parents don't have to pay federal taxes on the account's growth.

When it comes to choosing among plans, Francis says to try the comparison tool on collegesavings.org. However, if families are investing about $5,000 per year, they should discuss strategies with their financial advisor, she says.

[Don't fall for these college savings myths.]

2. Families facing a reduction in income: When either parent's income is significantly reduced, families should be careful about saving too much in a 529 plan, Francis says. If money needs to be withdrawn later to pay household bills instead of for qualified higher education expenses, families would incur a 10 percent tax penalty, she says.

If 529 plan assets are the only ones a family has in an emergency, they need to talk to a financial advisor before making withdrawals.

Avoiding a situation where they might have to withdraw from a 529 plan is one reason parents shouldn't choose an age-based 529 plan that automatically adjusts, says Marty Shenkman, a certified public accountant in New Jersey.

Well-intentioned parents sometimes leave their money in the same mutual funds within a 529 plan for 15 to 20 years, even if the funds are performing poorly, he says. Families need to review the account often and get professional help for choosing individual mutual funds.

3. Parents who hit the savings limit: A 529 plan can be a good investment option for higher-income families, too, but they'll also need advice from a financial advisor or certified public accountant, Francis says.

Members of this group might reach lifetime per-child 529 plan limits and need the flexibility of saving somewhere else. A lifetime limit is the maximum amount a family is allowed to put in a 529 plan per child.

[Find out how to conduct a review of your 529 plan.]

4. Those expecting financial aid: Any family looking for financial aid should seek an expert's help for figuring out how college savings will affect financial aid, Francis says. However, families with different income levels may choose different levels of help.

"Many colleges look favorably on middle- to high-income students who they can provide partial aid to knowing that the family can pay for the rest," says Melissa Sotudeh, a certified financial planner in Maryland. "However, savings in a student's name is always the least favorable when colleges determine possible aid packages."

For this group, Francis says a financial planner specializing in financial aid can help families see how savings may affect need-based aid awarded by colleges.

For families making less than $60,000 per year, Francis suggests free help from community, college or high school financial aid nights and workshops. There's help out there for everyone; families just need to know where to look, experts say.

Trying to fund your education? Get tips and more in the U.S. News Paying for College center.

Corrected 11/11/13: A previous version of this article incorrectly identified the collegesavings.org website and Marty Shenkman’s title.