Staving off thoughts of the atrociously high tuitions your child will likely have come 2030? There is no time like the present to start thinking about it. I’ve heard of children now in high school already thinking of their retirement funding and college savings for their own children. When I was in high school these thoughts couldn’t have been further from my mind. But the times, they are a-changin’. Hopefully by now, sweet parents, you are thinking of the same issues – at least in the recesses of your imagination.
For months we delayed the process. It seemed daunting and tiring, and there seemed to be too much to choose from. I mean, 50 states and many, many more plans than 50 to choose from?! ESA? Pre-Paid? What to pick? We had opinions from a financial adviser of what plans to consider but didn’t feel ready to really choose. So we backed away and saved the decision for a later date, which pushed later, and later, and later. It wasn’t until the busy times of summer settled down, our son decided to take some much needed rest, and well, L’s grandparents started bugging us, that we finally put it all together.
Finally Taking the Plunge
With our son safely asleep for the night and our computers wide awake, we finally got to work considering the joyful 529 college savings plans – learning the ins and the outs of the plans and finally selecting one for our little guy. Why a 529? Because it is a great way to save in a planned setting with earnings that are tax-deferred – and tax free as long as you use the money toward a child’s education. There may be tax deductions which you can make depending on the state you live in and where you are purchasing the plan (and some states, like Pennsylvania, allow a tax credit for the purchase of a 529 plan from any state, not just a PA plan). I also like the flexibility of the 529 in that the funds are owned and administered by the account owners, and in the event that education is not pursued by a child, can be transferred to another child as beneficiary or withdrawn as is. Remember, however – any withdrawal for non-school purposes would incur a 10% federal tax penalty and perhaps other charges.
Which schools can money earned through a 529 plan go toward? Generally – any school for which you would fill out a FAFSA, which includes most post-secondary institutions. And it can cover several categories of education-related expenses, including tuition, books, and room and board.
Finding the Resources for 529s from the Endless Internet
Rather than reinvent the wheel, I would rather point you in the direction of resources that were helpful for us during the selection process.
College Savings Plan Comparison Chart – Note – there are many other charts like this available on the Internet to help you choose among ESA, 529 (including the different types)
Our Final Decisions
After reading all our resources on 529 plans, we ended up selecting Utah’s plan, which came to us highly recommended from financial advisors and friends and family members alike as the least expensive and most flexible plan out there. I was happy to see in the Utah plan that if a child receives a scholarship, those funds can be withdrawn from the account with the requirement only to pay tax on the earnings, but without the 10% penalty.
Remember that even after choosing the plan you also have to select how aggressively you will invest the funds – will you choose a lower risk or a higher risk investment? A popular choice is to select a “set it and forget it” plan that will automatically age-adjust the investment for you, starting with more aggressive investments when your child is young and less risky funds when your child is older, so that whatever earnings you have made will be subjected less to a volatile market at the time you need the funds the most.
Any other resources on 529s that you have found helpful? Any other savings vehicles which you are doing or considering for your family? Let’s talk about it!