529 college savings plans are popular, but there are some myths surrounding them. Let’s dispel three of them below:
- I lose the money if my child doesn’t attend college. Actually, these funds can be used very flexibly. The 529 funds can be used for just about any type of education after high school, including all trade and technical schools. It is not just for the regular undergraduate degree. The money also can be transferred to another sibling, or even to the parent.
- I lose the money if my child gets a full scholarship. Again, the money can be transferred to another beneficiary. If your child gets a full ride, the penalty for a nonqualified withdrawal will be waived. You only need to pay income tax on the earnings in the account. This makes an Arizona college investment plan a wise choice.
- I only will be able to invest in plans in my state. You may invest in any 529 plan, but it is true that you will likely get state tax breaks if you go with the plan in your state. In Arizona, you still can get a state income tax deduction even if you use a 529 plan outside the state.