Another factor, Ms. Hume said, may be confusion about how a 529 account affects a student’s chance of receiving need-based financial aid.
The effect depends on who owns the account. Student aid experts say the effect is generally minimal when a parent owns the account for the benefit of a dependent student. The impact can be significant, however, if a grandparent owns the account — but there are several workarounds, said Mark Kantrowitz, publisher of Savingforcollege.com.
Parents who wait until their child is 7 to start saving, he said, will have to save much more out of their own pocket to reach their goal.
“Your greatest asset as a parent is time,” Mr. Kantrowitz said.
In fact, he said, parents can open an account even before a child is born, naming themselves as a beneficiary and then changing the beneficiary to the child’s name after birth. Mr. Kantrowitz said he had done that for his children.
As with any investment, gains are not guaranteed. But by starting early, investors have more time to ride out the inevitable market swings. Some age-based portfolios have more aggressive tracks than others, however, so savers should make sure to check their plan’s details to be sure they are comfortable with the mix of investments as their child approaches college. If you can’t stomach the idea of losing money, many 529s offer lower-risk — and lower-return — options, including savings accounts insured by the Federal Deposit Insurance Corporation and certificates of deposit.
Saving has become more essential as the cost of college has increased and the burden of student debt has become more of a concern.
The average published cost of tuition, housing and meals is about $22,000 a year for in-state students at public four-year colleges, and about $50,000 for private, nonprofit four-year colleges, according to the College Board. (The totals don’t include fees and expenses like books and equipment.)