Friday, May 29, 2009

Catch 22

We recently had a run-in with our bank. They botched up a bunch of stuff for us and didn't fix it. Ok, rather, our personal banker did it. And the bank wouldn't cover the fees for her mistakes, etc. But that is not the point of this post. We closed all the accounts that we could at this bank and moved our business elsewhere. This included Isaac's account. I established new savings and checking accounts for us, and rolled over our IRAs at new, nice bank. The only account I did not re-establish was Isaac's. And for no reason other than I haven't had his social with me to do so whenever I have been at the new bank.

Well, my husband and I started talking about what kind of account we wanted for him. Old bank had a great money market account that was perfect for the moment. New bank offers a wider range of products that seem suitable. So what's my catch 22? Ah, the infamous 529 account.

As I sat discussing the possibilities of accounts with the investment specialist, this type of account came up many times. New banker person asked what it was about 529s that we were opposed to. And I should say I am not opposed to them. I think they are a wonderful product and we seriously considered them. I want my child to have money for his education and I liked the return rates, etc. Here's why we decided not to.

Recent research into the 529 accounts (and I mean at my office with coworkers research) revealed that a 529 account can inhibit my son from receiving federal financial aid. Not federal loans, but grants, etc. The kind you don't have to pay back. Now, I would like to envision that my son will get full funding for whereever he wants to go to school, or at least a pretty sweet deal, but let's be realistic. In 18 years, the price of a semester's tuition at even a state school will most likely be equivalent to pruchasing a new car or even feeding a small nation. A coworkers banker literally told him that the 529 could prevent state and federal financial aid, and the ability to get a private loan for school. It wouldn't impact the any scholarship or grants said student would receive from the school or private sources though. Hmmmmm.

What really sealed the deal for us was that a 529 has to be used for education. I know, duh, right? So what happens if my kid doesn't want to go to school? He doesn't get the money unless he pays penalty fees up the wazoo. In an ideal world, I want my son to go to college. But if he doesn't want to, I will support him in that decision too. I want him to do what will make him happy. Yes, I will push the college road as much as I can, but it isn't for everyone. My husband didn't go to college. I got my Masters and he still makes more money than me! I have heard that a 529 also will not apply toward education at a vocational school, like culinary school.

When I told new banker person my drawbacks, she seemed a little taken aback. Like "why wouldn't you force your child to go to school?" That just isn't who we are. She said the fund could go to another one of our children. More drawbacks: What if we don't want more children? And if we do, how nice is it to say "Oh sorry son. All that money that everyone has given you over the years...yeah, you can't have that. But your sibling can!" I want my son to have the future that he wants, not what we want. Again, we will encourage him to go to college, but we will encourage him more to follow his heart and dreams. Sometimes that does not involve college.

And say he does go to college. And say he gets a great financial aid package. He can't use the money for living expenses or such. Just tuitional and educational fees. According to new banker person, that is.

So that's it. The 529 is our catch 22. Great if Isaac wants to go to college. Not great if he doesn't. I just don't know what to do. Any thoughts or suggestions? :( HELP ME!!!!


Anonymous said...

We opened a 529 for B. Nebraska has one of the best college savings plans in the country - and we figured the tax benefits were worth it, for us. According to the website, his 529 funds can be used for vocational and trade schools (at any school in the Nation), and the funds can be used for books, etc. I have no clue if this is true of other state's savings plans. I know you can open a savings plan from any state you want to (like you could open a Neb. one if you wanted) but you obviously wouldn't get the tax benefits. I have a good friend in financial aid, and I will email her about whether the savings plan affects federal financial aid - I hadn't thought of that at all! Here's Neb.'s website: Good luck! :)

The Grady Chronicles said...

Please let me know what you hear about the 529 and financial aid. I also hadn't thought of that.

Andrea said...

I'm no help! But I've already been thinking about what type of account to open for my son after he's born in September. So whatever you end up deciding, update so I can read about it!

Oh yeah, and I completely agree with you about not forcing your children to go to college. That happened to so many of my friends and it really drove them and their parents apart. I believe that children (especially the oldest child!) shouldn't feel so pressured to make their parents happy. That's not a good way to live.