Alternatives to 529?

[Jim Stevenson]

Curious to hear other's thoughts on saving for college through a 529. I've started contributing ever since my son was born 5 months ago but I hate the fact that it can only be used for education. I feel like there's the strong possibility of being stuck with a large chunk of change that I can't even use (if I don't want to pay the withdraw penalty) if my son decides to forgo college. I just read the BP post today about 529s which struck my interest in this. What alternatives are you using?

[Paul Allen]

That was a really good article by Brandon Hall. If you have enough income from your real estate business to arrange hiring your children as he suggests, I would do it. Otherwise, I am a fan of the Virginia 529 plan (for Virginians).

Your question seems to be "how can I save for college in some way other than the program specifically established to give me tax breaks to save for college?"  The answer is there aren't many alternatives that come close to the tax benefits of the 529 plan. If you want to retain maximum flexibility for using the investment for something other than education, you are going to forgo some tax benefits.

That said, the Roth IRA is a reasonable option, but you are limited to withdrawing only the contributions until age 59.5

One of the reasons I like the Virginia 529 plan is there is no minimum time the money must be in the account to get the state income tax break. We had some money outside the 529 that we needed to use for college expenses. We dumped it into the Virginia 529 College Wealth plan (an FDIC-insured bank account) and then withdrew it a short time later to pay expenses. It didn't get us any federal tax breaks, but it qualified for the Virginia tax deduction. I don't know whether or not MD's 529 plan allows something similar.

Congrats on the birth of your son, by the way!  Best of Luck on Your Journey!