When our readers and users of FreshmanFund.com send us questions, we'll post the answers here to help anyone searching for information on the best ways to save for someone's college education.
Which 529 plans offer FDIC-insured investment options?
With the market in upheaval, many families are seeking protected accounts for their education dollars and several states have responded to the call. Currently, five state plans offer FDIC-insured 529 plans: Arizona, Montana, Ohio and Virginia primarily use Certificates of Deposit as the funding vehicle (minimum deposits required), and Utah, which uses a good old savings account and requires no minimum deposit. While the rates of return are very low, these options provide families with the peace of mind that their funds will still be there when needed and will create at least a little growth over time. For families wary of entering the market during volatile times, these FDIC-insured state 529 plans provide an excellent option.
Why an FDIC account? FDIC is a familiar acronym and stands for Federal Deposit Insurance Corporation. The FDIC is the government-backed agency covering account holders in the event of a bank failure, up to certain limits and only for cash deposits in checking, savings and Certificates of Deposit. The full faith and credit of the United States government stands behind banks belonging to the FDIC and therefore provides an absolute guarantee of safety to depositors, unless the government itself fails.
Until the economic tsunami of 2008, the college funding business did not really focus its attention on accounts that could be protected through FDIC insurance because the rates of return were so low. In late 2005, a revision in FDIC rules created an opportunity, however, for 529 plan administrators to obtain FDIC insurance on a collective account with protection for each individual investor, thus opening the door to creation of FDIC-insured 529’s. Now families have the option of tax-benefitted savings for college without risk.
Share your thoughts: Should all 529s qualify for FDIC insurance or another form of government credit?