Why Now is the Best Time to Start Saving for Your Child’s Future
By Patricia Roberts
As a mom who began investing in a 529 college savings plan when my son was an infant and as a mom now about to celebrate his debt–free graduation from college next month, I am determined to help other parents learn about easy ways to begin to prepare for their child(ren)’s higher education expenses. Twenty-one years ago, I could have never imagined how good it would feel to have planned ahead for college costs, to celebrate my son’s ability to start his adult life free of debt, and to know he’s been enriched with the knowledge of the steps we took as a family to get him there. Looking back, opening a college savings account early in my son’s life was one of the best decisions I made as a new parent.
Many parents-to-be are not familiar with 529 college savings plans and most do not realize they can open an account and begin saving even before their child arrives. Getting started before a child arrives gives new parents one less thing to think about and thanks to the power of compounding, provides extra time for contributions to grow. As an added benefit, having a college savings account established gives friends, extended family, and even employers a convenientdestination for funds if they’d like to contribute as a baby shower or baby arrival gift.
What Parents Love about 529 Plans
Ten features that parents seem to appreciate most about 529 college savings plans are the ability to:
1. Get a head start on saving for the future. Most 529 college savings plans permit account owners to name themselves as the account beneficiary and then, to switch the beneficiary to the child once the child arrives and has obtained a social security number.
2. Save on taxes while saving for education.
• Earnings on 529 college savings accounts are not subject to federal or state tax when the account is growing and withdrawn for covered expenses.
• Nearly two-thirds of states as well as the District of Columbia offer a state tax deduction or credit for contributions to 529 college savings plans.
3. Open the account with a low initial minimum of typically $25 or less.
4. Earmark funds for education to avoid the temptation to use the money for other purposes.
5. Use the funds at a wide range of accredited post-secondary schools across the United States (including 2-year and 4-year colleges and universities, trade schools)and some international schools as well.
6. Cover a broad range of educational expenses such as tuition, fees, books, supplies and certain registered apprenticeship and room and board expenses.
7. Invite friends and extended family to contribute with ease in lieu of more traditional gifts that are quickly outgrown in size or interest. With 18 birthdays, at least 18 annual holidays and many other special occasions between birth and college, there will be at least 40 celebrations for individuals who love your child to contribute to an account you’ve established.
8. Have employers facilitate payroll deduction to these accounts and offer an optional employer match or contribution as well.
9. Use the account to cover up to $10,000 annually in K-12 tuition
10. Change the current beneficiary at any time to another future student as long as the individual is a “family member” of the current beneficiary. If the current beneficiary does not need the funds, a member of the family (including a sibling, cousin, parent or child of the beneficiary) can be named instead.
More Information
To learn more about 529 college savings plans, visit the College Savings Plans Network or consult a financial advisor if you have one. While you are not required to invest in your home state’s 529 plan, it’s a good place to begin your research given state tax and other benefits that may be available to you.
A Reason to Celebrate
As we celebrate my son’s college degree in June, we will also celebrate the steps we took as a family to prepare forthe cost of it. When your child is much older, you and yourfamily will also look back and appreciate the few minutes you spent to open an account and to begin investing in your child’s future.
About the Author:
Patricia Roberts is the Chief Operating Officer of Gift of College, Inc. and author of Route 529: A Parent’s Guide to Saving for College and Career Training with 529 Plans. She has helped tens of thousands of families avoid millions of dollars in student loan debt through her leadership over the past 22 years in nearly every aspect of the 529 college savings arena and she has helped employers of all sizes implement meaningful solutions to support employees with saving for or repaying the cost of higher education.
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