Should you use your full 529 fund to pay for college?

With the cost of college rising, many parents are turning to 529 plans to pay for their future children’s college tuition.

These plans allow families to put away money tax-free for future use. Like a 401K or IRA, funds are invested in mutual funds or similar investments.

When your child finally reaches college age, many parents wonder if they should put their entire 529 savings toward their student’s first year of tuition or save some for future years in order to allow the fund to grow even more.

Using 529 plans to pay for college

According to Time Money, this is a bad idea.

Raymond Loewe, an adviser with United Planners Financial Services, says it’s best to use the funds as soon as possible. Since the stock market has been doing well recently, he says families should take advantage of those tax-free benefits now.

Another added bonus is that using the 529 funds now could make you eligible for more financial aid in future years, since colleges won’t have that extra asset to consider when determining the student’s need.

The biggest drawback to using all of the funds now, according to Joe Hurley of Savingforcollege.com, is that the IRS won’t let you claim an education tax credit and take the 529 tax break for the same expenses.

Save for college early to reduce college costs

Planning for college early can make paying for college less stressful and reduce the amount of money parents and students are forced to take out in student loans.

Investing in a 529 plan is a good way for many families to put money aside for college, but they’re not for everyone.

For more information on 529 plans, read our posts on the pros and cons of 529 plans and considerations for families who plan on using 529 funds to pay for college.