College Savings Whats In, Whats Out

In recent years, we've seen a number of changes in the ways families can save for future education costs. Here are some trends to watch out for to make sure you're maximizing the savings potential of your 529 plan. Out: Assuming you need to use your home state's 529 plan. In: Using your home state's plan might be a smart idea if you live in one of the 34 states (including the District of Columbia) that offer a tax credit or deduction for residents who contribute to their plan. But residents of Arizona, Kansas, Maine, Missouri, Montana and Pennsylvania should be shopping around, since these states offer a tax break for residents who invest in any state's 529 plan. Out: Blindly following advice when it comes to selecting a 529 plan. In: Doing your own research. Your family, friends, and financial advisor likely have good intentions when they recommend a college savings plan, but it's a good idea to do your homework before you enroll. 529 plans can be purchased directly, or through a financial advisor. While some may appreciate the professional advice that an advisor can offer, others may want to take advantage of the lower cost options that come with a direct-sold plan. Today, every state except for Wyoming has at least one 529 plan available, and direct-sold plans make up just over half of the market share, according to Morningstar. You can compare plans by feature using Savingforcollege.com's 529 Plan Comparison Tool. Out: Only being able to make one 529 plan investment change per year. In: A change made with the signing of the ABLE Act in 2014 allows 529 plan account owners to make twice yearly investment changes in a 529 account. RELATED: Investing trends of 529 college savers Out: Not using your 529 plan to pay for laptops. In: Taking tax-free 529 withdrawals to pay for computers and related equipment. This was made possible by the signing of the PATH Act in 2015. Out: Only using your 529 plan to pay for a student's four-year college tuition. In: Money can be withdrawn tax-free from a 529 plan to pay for courses at any eligible institution. With tuition prices continuing to soar, many students are cutting costs by enrolling in community college for two years before completing their bachelor's degree at a university. Others may want to pursue a career that only requires vocational or technical training. Out: Taking non-qualified withdrawals. In: As stated above, 529 plans can be used to pay for more than just traditional college, so be sure to consider all of your options before you take a non-qualified withdrawal and get stuck paying income tax and a 10 percent penalty on your earnings. If your child gets a military scholarship, consider using your unused 529 plan funds to pay for a study abroad or gap year program. Or, if the student you opened the account for really has no use for the money, you can simply change the beneficiary to a sibling or other qualifying family member, including yourself. RELATED: 7 myths and realities of 529 plans Out: Not monitoring your plan performance. In:The stock market is off to a rocky start in 2016, and experts predict there will be more volatility to come. It's a smart idea to make sure the investment managers handling your college savings account are performing in line with their competition. Some good places to compare 529 plan performance include Savingforcollege.com's quarterly plan performance rankings, our 5-Cap Ratings, and Morningstar. Out: Giving kids toys for birthday and holiday gifts. In: Contributing to a college fund in lieu of gifts. According to a recent study by Fidelity, 87 percent of parents would prefer to receive money for college instead of a traditional gift for their child. Many 529 plans allow friends and family to easily make gift contributions to an account, or some may prefer to give college savings gift cards that can be redeemed through 529 plans and even some student loan providers. RELATED: 5 habits of successful college savers In recent years, we've seen a number of changes in the ways families can save for future education costs. Here are some trends to watch out for to make sure you're maximizing the savings potential of your 529 plan. Out: Assuming you need to use your home state's 529 plan. In: Using your home state's plan might be a smart idea if you live in one of the 34 states (including the District of Columbia) that offer a tax credit or deduction for residents who contribute to their plan. But residents of Arizona, Kansas, Maine, Missouri, Montana and Pennsylvania should be shopping around, since these states offer a tax break for residents who invest in any state's 529 plan. Out: Blindly following advice when it comes to selecting a 529 plan. In: Doing your own research. Your family, friends, and financial advisor likely have good intentions when they recommend a college savings plan, but it's a good idea to do your homework before you enroll. 529 plans can be purchased directly, or through a financial advisor. While some may appreciate the professional advice that an advisor can offer, others may want to take advantage of the lower cost options that come with a direct-sold plan. Today, every state except for Wyoming has at least one 529 plan available, and direct-sold plans make up just over half of the market share, according to Morningstar. You can compare plans by feature using Savingforcollege.com's 529 Plan Comparison Tool. Out: Only being able to make one 529 plan investment change per year. In: A change made with the signing of the ABLE Act in 2014 allows 529 plan account owners to make twice yearly investment changes in a 529 account. RELATED: Investing trends of 529 college savers Out: Not using your 529 plan to pay for laptops. In: Taking tax-free 529 withdrawals to pay for computers and related equipment. This was made possible by the signing of the PATH Act in 2015. Out: Only using your 529 plan to pay for a student's four-year college tuition. In: Money can be withdrawn tax-free from a 529 plan to pay for courses at any eligible institution. With tuition prices continuing to soar, many students are cutting costs by enrolling in community college for two years before completing their bachelor's degree at a university. Others may want to pursue a career that only requires vocational or technical training. Out: Taking non-qualified withdrawals. In: As stated above, 529 plans can be used to pay for more than just traditional college, so be sure to consider all of your options before you take a non-qualified withdrawal and get stuck paying income tax and a 10 percent penalty on your earnings. If your child gets a military scholarship, consider using your unused 529 plan funds to pay for a study abroad or gap year program. Or, if the student you opened the account for really has no use for the money, you can simply change the beneficiary to a sibling or other qualifying family member, including yourself. RELATED: 7 myths and realities of 529 plans Out: Not monitoring your plan performance. In:The stock market is off to a rocky start in 2016, and experts predict there will be more volatility to come. It's a smart idea to make sure the investment managers handling your college savings account are performing in line with their competition. Some good places to compare 529 plan performance include Savingforcollege.com's quarterly plan performance rankings, our 5-Cap Ratings, and Morningstar. Out: Giving kids toys for birthday and holiday gifts. In: Contributing to a college fund in lieu of gifts. According to a recent study by Fidelity, 87 percent of parents would prefer to receive money for college instead of a traditional gift for their child. Many 529 plans allow friends and family to easily make gift contributions to an account, or some may prefer to give college savings gift cards that can be redeemed through 529 plans and even some student loan providers. RELATED: 5 habits of successful college savers