529 Plans

Can I Use a 529 Plan for an MBA?

March 22, 2021
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Sootchy Team

Learn how you can take advantage of one of the most powerful savings accounts to help fund your MBA and achieve your educational goals.

Can I Use a 529 Plan for an MBA?

Across virtually every industry, the Master of Business Administration degree, or MBA, is a common sight on resumes, especially at higher levels of management. Many people pursue an MBA in the hopes of starting their own business or contributing to the success of another – and, in doing so, improving their overall value to a current or future employer. Whatever the motivation, getting an MBA is often a great idea for furthering your career, but as with any college degree, the big question is how to pay for the program you want to enroll in. Should you take out a loan, or is there a financial tool that could allow you to avoid excessive debt and still afford that MBA? One commonly considered option is the use of a 529 plan, but given how specific the uses of these plans are, the question remains: “Can I use a 529 plan for an MBA?” To find out, keep reading as we dive into this important topic.

Can a 529 Plan Be Used to Get an MBA?

Although a 529 plan is a powerful investment tool that can provide substantial tax-free earnings, it comes with certain caveats, one of which is the fact that these accounts can only be used for specific purposes (“qualified distributions” in IRS parlance). Depending on what kind of 529 plan you have, an MBA will likely fall under an accepted use, but there are a few points to consider.

First of all, keep in mind that some 529 plans offer greater flexibility than others. A prepaid tuition plan usually involves buying education credits in advance, so one of these plans may not cover an MBA if that coverage was not prearranged when the plan was opened. An education savings plan, on the other hand, allows you to spend the money in a plan however you want – as long as it’s on something education-related – so you should be able to easily use the funds in one of these accounts to pay for tuition, housing, books, and other costs associated with an MBA program, and ABLE accounts (which cater exclusively to Americans living with disabilities) offer even more extensive coverage.

Secondly, there’s the question of your plan’s maximum contribution. Each 529 plan has a limit on how high the balance can grow before contributions must stop, which means that your 529 plan may have the capacity to cover four years of undergrad plus grad school. To be fair, most of these limits are quite high; some are over half a million dollars, but others barely clear $200,000. While this may seem like a lot of money, the rising cost of tuition at schools around the country may mean that even the most well-funded 529 plan can’t quite cover your MBA expenses.

Generally speaking, however, a 529 plan can be used for an MBA program, but you should still check your plan’s policies before assuming you’re covered.

How to Invest in a 529 Plan for Your MBA

Almost every 529 plan – especially those considered education savings plans – has a variety of investments from which an account owner can choose, and some may be better for an MBA than others. The simplest type of portfolio with most 529 plans is the age-based option, which starts out aggressive when a beneficiary is very young then becomes more conservative over time to protect any gains. This option makes sense for someone who intends to use the money right when they turn 18, but since most MBA programs don’t start until a student is in their early 20s, it might make sense to take advantage of the other type of portfolio available with 529 plans: the static option.

In short, a static portfolio is one that only changes when the account owner says so, rather than shifting automatically over time. This allows plan owners to choose what kind of returns – and risks – they want to see with their plan. If you or a loved one is planning to attend grad school to get an MBA, you might want to choose a static option that allows for continued growth through the student’s undergrad years to take full advantage of the extra time and earn as much as possible from the account.

Of course, this doesn’t mean that you should jump into an aggressive investment with both feet just a few years before the start of an MBA program, but the ultra-conservative investments common to late-stage age-based portfolios may not be able to generate much in the way of returns and could therefore limit the benefits of a 529 plan for prospective MBA students.

For this reason, be sure to look at a plan’s investment options before enrolling to see if they have the kind of low- or mid-range funds that could benefit an account owner looking to maximize their gains on behalf of a 17- or 18-year-old. All 529 plans publish their investment options as well as the performance stats for those investments on their websites, so the relevant information shouldn’t be too tough to find.

Open a 529 Plan for Your Future MBA Student with the Free Sootchy App

The ins and outs of any 529 plan are going to be a bit complicated, but that doesn’t mean that signing up for one of these accounts has to be difficult. The free Sootchy app makes it simple to enroll in the 529 plan of your choice, not to mention manage your new plan or suggest a contribution from loved ones on special occasions. Learn more about the benefits of 529 plans for MBA students or start a plan today by downloading the free Sootchy mobile app or visiting us online.

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