Biggest college savings misconceptions

http://www.savingforcollege.com/articles/biggest-college-savings-misconceptions

Financial Professional Content

Our first annual College Savings Survey has just been released. Take a look and you'll find a lot of helpful information about family attitudes concerning saving for college and, in particular, 529 plans. What surprised me was the degree of confusion that still exists about how 529 plans work. Here are the biggest misconceptions that parents and grandparents have.

Among survey respondents without a 529 plan, 42% incorrectly answered “False” to the question “My child can never withdraw from the 529 plan without my permission.” This suggests that many parents and grandparents feel the account beneficiary has a legal right to the funds when in fact the beneficiary has no rights regardless of age.

When asked if savings in a 529 plan are considered when determining financial aid eligibility, 39% of that same group answered “False” when the correct answer is “True.”

Here are some more questions that were incorrectly answered by a significant percentage of non-529 respondents:

• 26% think they must use the 529 plan offered by their state of residence.
• 22% believe that 529 plan savings must be used towards colleges in the state where the plan is based.
• 17% believe they will lose the money they have saved in a 529 plan if their child does not go to college.
• 11% believe they will lose their 529 money if their child receives a scholarship.

Among respondents currently using 529 plans, the percentages of incorrect answers were much lower.

These results suggest that your initial effort in speaking with clients and prospects about 529 plans should go toward dispelling the myths they may have. Once they have a solid understanding of how 529 plans work, any reluctance they have to using 529 plans will be greatly diminished.