This study will evaluate three programs:
The purpose of this report is to summarize the results of an analysis of funding your child in the 1417Power Program versus funding your child’s 529 Education Savings Program account.
Forbes July 18, 2013 issue reported: "Over the past decade the inflation rate for public four-year colleges was 5.2% [annually]". The implication being that 529 program earnings are not keeping up with escalating college costs. Savingforcollege.com reports: "As the custodial parent of a dependent student, your non-retirement investment assets are assessed in determining your child's Expected Family Contribution (EFC). Any 529 accounts under your ownership are counted as parent assets for this purpose.”
The US federal Tax Code allows withdrawal of all amounts paid into a 529 Educational Savings Program (your equity) at any time for any purpose. You are allowed to adjust to zero the amount of your monthly contribution to a 529 Educational Savings Program. Having any savings in a 529 Education Savings account negatively impacts eligibility for need based financial assistance and may have negative impact on some merit based scholarship offerings. By law Roth IRA account value is excluded for assets on the FAFSA application. 529 Educational Savings Accounts are subject to penalty and income tax if they are not used for the specified individual for qualified educational expenses.
A logical interpretation is; a 529 account might not accomplish your objective and could become a tax problem if your child elects a non-college option. It could be a hindrance to receiving financial aid.
Many experts are advising parents to re-evaluate the whole concept of using a 529 program. The table below presents Morningstar, Inc. reported 529 programs' rates of return:
Morningstar Category |
529 Average Five-Year Return % |
Large Value |
-0.87 |
Large Blend |
0.47 |
Large Growth |
1.01 |
Conservative Allocation |
3.71 |
Moderate Allocation |
2.54 |
Intermediate-Term Bond |
4.69 |
Short-Term Bond |
3.44 |
The table below provides a summary of the cost and total tax exempt Roth IRA account value of the 1417Power program and their 529 Education Savings Account versus the child’s 529 Educational Savings Account value based on not withdrawing any equity or changing their ongoing monthly contribution.
Item |
Continue the 529 Education Savings account |
1417Power Lump Sum Prepayment |
1417Power monthly Prepayment |
Combining Lump Sum and Monthly Prepayment Programs |
Value of Roth IRA account at age 67* |
$0.00 |
$924,000 to 1,222,000** |
$485,000 to $641,000** |
$1,595,000 to $2,110,000** |
529 Education Savings Account value at age 18 |
$16,800 |
$8,674.25 |
$11,062.18 |
$2,935.78 |
* Roth IRA value is based on a mathematical calculation using 11.5% annualized rate of return. 11.5% is the 50-year average S&P500 index annual rate of return it is not a forecast or prediction. Past performance of any investment program is not a predictor of future performance.
** 1417Power offers referral and revenue share credits that increase the participants level and or duration up to a maximum of a 30% increase in participation. This results in approximately a 30% increase in the Roth IRA contribution amount.
Converting equity and future monthly payments, or just equity or just future monthly payments from a 529 Educational Savings Program to a 1417Power Program can provide hundreds of thousands of dollars for your child’s retirement versus nothing saved, at no additional “out of pocket” cost to you.
The logical conclusion; it is preferable to have savings in a Roth IRA versus in a 529 Educational Savings Program Account. The analysis strongly recommends moving your 529 Education Saving program account equity and all future payments to a 1417Power Program. In addition to not being counted as an asset for scholarships and financial aid the Roth IRA is exempt from tax forever, even estate tax.