College Savings Account – AKA, the 529 Plan

College. It seems like a long ways off, but really, it’s only 16 years away for Stella and 18 years away for the little man who is about to join us. When I plugged some test numbers into this handy dandy calculator to estimate how much our current savings efforts would help out Stella come the fall of 2030, it was pretty eye opening for me. If we can find a way to contribute $100/mo to her 529 plan (we’re currently doing $50/mo), that would only cover about 18% of her estimated total education cost for a public 4 yr school, in-state. When I plugged in the numbers for the private college I went to using the college cost projector, the outlook was even scarier (8.4%)! We haven’t even addressed the fact that we’re about to add a 2nd child to the household for whom we should also start a savings account. Eek!

Don’t get me wrong, I’m not someone who thinks I need to 100% fund my child’s college education by any means, but I do think a college education is really important, and if I can incentivize my kids to at least give college a shot and see what they think, that’d be great! College was honestly four of the best years of my life, and everything I learned from school itself and through my travels as a result of my majors (International Business/French) truly changed who I am as a person. My parents weren’t wealthy when I went to college, and since I was the oldest of 5 kids, it actually worked out that I qualified for a lot of state & federal grants (that I didn’t have to pay back), plus I applied for (and won) a shit load of scholarships. That’s when being an overachiever in high school really paid off. :) I think it cost around $25k-$30k/yr for college when I was there from 2000-2004, and I managed to come out of college owning very little compared to my comrades. If I remember right, I took about $8k of loans out simply for fun spending money/living expenses when I studied abroad in France (with an awesomely low interest rate of < 2%), and those will be paid off in the next 6 months. My goal is to be paid off by May 2014 – 10 years post graduation! My parents helped out with gas/grocery money while I was in college, and I worked a few part time work study jobs throughout all four years, but mostly I just concentrated on doing well in class and enjoying the whole experience. It was awesome.

In regards to Stella, we opened her a money market account shortly after she was born, but I always knew I wanted to open an account that would be dedicated for educational money. After doing some research, a 529 account seemed like the way to go (read about the “top 7 benefits” of a 529 plan here).

http://www.savingforcollege.com has a lot of great information on it, and since I live in Colorado, I actually purchased my plan through https://www.collegeinvest.org/  We went with the CollegeInvest Direct Portfolio plan – it has consistently great ratings, lots of investment options, low fees, and my contributions are tax deductible since I’m a Colorado resident.

  • Your savings grow free from federal income tax and account assets used to pay for qualified higher-education expenses are free from both federal and Colorado state income tax
    • We can contribute up to $28,000 / year (since we’re married filing jointly) and still qualify for the federal annual gift tax exclusion. (not that we’ll ever contribute that much!)
    • Contributions to a Colorado 529 plan, to the extent of the contributor’s federal taxable income, are deductible in computing Colorado taxable income. (basically, the money I’ll save on my state income taxes will easily pay for any annual fees from the account)
  • Grandparents, friends, etc. can contribute to the plan we opened, or they can open their own. Questions for Grandparents
  • If your AGI is under a certain amount, some plans will do matching amounts. Our particular plan has a “Matching Grant Program” that will match up to $500/yr for 5 years if you’re eligible. We made just over the cutoff on our 2012 taxes, but hopefully next year with an additional child we’ll qualify for this program. It’s a great (easy! free!) way to add an extra $5000 ($2500/ea) to their college funds over the next five years!

So there ya have it. I am by no means a professional on any of this, but I am so glad I finally took the time to do a little research and open an account for Stella. I plan on opening one for little man as well as soon as he arrives!

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22 comments

  1. We currently only put $100/month too. Thanks for the reality check :) I had not done the numbers to see what that means in 18 years. I guess we need to see if I can maybe bump that up a little? And 16 years is so not far away. We are 2 years away from it with my step-daughter and her 529 is maybe going to cover one semester if we are lucky.

    1. Yeah, I was kinda shocked when I realized how (not) far $100/mo was going to take us. Better than nothing though!! :)

  2. This is a huge topic in our house. B wants to fully fund their educations, and I think it would be nice if they paid their tuition. Thank you for the reminder about setting this up before year end! We do catch up at the end of the year to get the tax benefits.

    1. I’m actually not against fully funding their educations – its just not realistic for us (right now). Maybe in the next 15-20 years stuff will change, we shall see. :) The cost of education is so crazy high now & it just keeps going up. I’ll do anything I can to help out with that for me kids! Ppl argue that kids won’t “appreciate” it or work hard if they’re “given” their college education – but I think that has to do with your parenting and what values you’ve instilled in them. My parents did everything they could to help me, and I never had to get a “regular” job while in college – yet you can bet your bottom dollar that I did everything in my power to get the most out of college, get good grades, and make them proud. I knew it was important to them and important to my future to do the best I could – no matter who was footing the bill!

  3. Both my hubby and I had to pay for our own college…which ended up being in the form of student loans. When I graduated, I had roughly $65,000 in student loans which was in 2007. I’m proud to say that now, my college is 100% paid off as of last January!!! Hubby only has one more student loan which is $20,000 then we are completely debt free! We are torn on whether or not to start college funds for the boys or not. Part of me doesn’t want too, because working/paying for college on your own I feel made me take it more seriously. However, we also don’t want the boys to graduate with lots of debt the way we did. Even though we worked hard to pay off our loans, it still took time and sacrifice. I’m thinking we will end up leaning towards partly paying for their colleges, but then encouraging good grades for scholarships/grants to help pay for the rest. Great topic!

    1. The right balance will be different for everyone for sure! See my response to Courtney above about taking it seriously no matter who is footing the bill! :)

      Congrats on paying off so much debt already – that’s got to be a great feeling!

  4. This is something I was all ready to start for Chloe (and Drake now – holy hell I have two kids to put through school now!) but after taking the Dave Ramsey class, I realized that if we currently have debt that we are accruing interest on, like credit cards, we need to pay those off first and then start contributing to a college fund. I think it’s a great idea to start now if you can, but for us it made sense to get the last of our debt paid off before starting to pay into this fund. It at least gives us a little more breathing room each month.

    1. Yeah, our only debt is our mortgage (and Charlie’s work loan for his concrete company). Cars, credit cards, etc. are all paid off – that’s why we’re comfortable trying to focus more on at least starting to contribute to their savings accounts! The end of my student loan is the only other bill we have, but there’s only a cpl hundred left on that and it’s done. Wahoo!

  5. Good for you!! We don’t have kids yet, but I looked into it a few months back and was SHOCKED too at the numbers. Every little bit helps!

  6. We have a 529 for both the girls and a GET acct for Gracie. GET stands for guaranteed education tuition. In our state, you can pay for credits now, at today’s prices, and use them when they get to college. You can use them at almost any school in the country. There are benefits and drawbacks to both systems and that’s why we ended up with accts at both haha

    1. The program I had heard of that allowed you to pay for credits now only worked for state schools IN our specific state, which is why I didn’t do it. I have no idea if Stella will want to go public/private and in-state/out-state, so it seemed too risky to me. Smart of you to invest in both if you can though!

  7. theurbanjunglegym · · Reply

    LG and I are fortunate enough to have finished college and grad school with no loans at all thanks to generous parents and various fellowships for grad school. It is truly an immense blessing to our financial lives and futures– we’ve been able to fund our retirement accounts, pay down the mortgage, save for emergencies and fund our kids’ 529s at much higher levels thanks to our freedom from student debt. I really want to give our children that gift, as well, and have also set up 529s for them both (though we fund them in one lump at the end of the year rather than monthly). I’m hoping to have about half the costs required saved in the 529s by the time they go to school, and then pay for the rest out of other sources (to avoid putting all our eggs in one investing basket).

    I do see the arguments for having your kids pay their way through school, and they make a lot of sense. But with the costs so astronomically high now, the reality of doing that is much more of a burden than it used to be. It seems like helping your kids out with education costs in whatever way you can gives them such a leg-up financially I want to do whatever I can to help meet that goal.

    1. Yeah, I think it’s a huge blessing to be able to graduate without any loans. My husband’s employer took over his student loans as part of his hiring agreement 10 years ago, and my loans were so low that I’ve been paying about $100/mo (with negligible interest) so I never really focused on paying it off early, which I easily could have. I have friends though who pay thousands a month on their student loan debt, and I can’t imagine the additional financial stress that would put on a person/marriage! I hope that our financial situation improves to the point we can totally fund their educations someday, but in the meantime at least we can do a little to try to help. :)

      Oh – and I responded to Court about above the arguments AGAINST paying for your kids’ educations, but I just don’t agree with them. I think it’s more about how you’ve raised your kids and the values you’ve taught them. I knew that education was impt to both my parents and to myself & future, so I worked my ass off in college – even though it was basically funded by grants, scholarships, and my parents.

      1. Yes, I too valued my education and worked hard to do well, even with school being paid for me. And hey, I clearly like school since I’m still there! But my dad always said he would put us through school on the “four year plan”– we could go wherever we wanted and he would pay, but only for four years. If we took longer, that was on us. And he also would not pay for grad school, so I found ways to fund that on my own that didn’t require loans.

  8. Oh man funding college. And retirement. We are going to have to save hardcore to make either of those happen for the girls or for us. I think I’ll put that planning after the estate/will/end of life stuff that’s next on our agenda. It remains surreal to me that we have 2 children and they just run wild around the house. Whoa. And you will too soon! Squee!

    1. Ugh, drawing up a Will / end of life docs is also on my “must-do” list for 2014. I just don’t even know where to start!

  9. My 3 kids 4 and under all have 529′s. as someone else commented, we put a lump sum in at the end of the year (some from ourselves and some from grandparents and families for birthdays, holidays, etc.) and each child has a decent amount saved so far.

    That said, my college was paid for by my grandparents and a little by my parents. I always worked to pay for my own gas and food and had pretty good grades so I didn’t take it for granted. I am so, so thankful now. My husband went back to school for another degree (needed for his more exec type management position) and we have been diligent about paying the last 3 semesters out of our savings, I really do not want loans unless we have to. That said his employer has stepped in and generously offered to cover about 50 percent of his total tuition for the degree, including paying us back for the 3 semesters we had already paid out of pocket (nice to get some of that money back before the holidays and another baby due in 4 wks!)

    It sounds like you guys have a good plan. One of my husband’s old bosses had an idea I liked. His son was responsible for paying for his first semester himself (about 3K) and when he got his grades (they had to be over a 3.0GPA) his dad have him the money back and that covered his next semester. If he did poorly in school it was his own money he was out of so it encouraged him to work a little harder.

  10. We have to get Baby X’s open. The calculator is so discouraging! It told us $800/month. Hahahahaha. We will not be financing his education in full that’s for sure!

  11. Great post. We have just recently been talking about how we really need to get this started for Lids. It is hard for us to do down here and we had a brief meeting with a financial advisor in Canada over the summer but didn’t get anything set up. Hope to do so this summer though. But $100 a month will be a stretch for us. Ugg money is so stressful. I can’t think about it anymore tonight but definitely need to figure this out soon! Thanks for the reminder!!

    1. Ya, I suppose this is one of those situations where your cost of living is really low where you’re at and your salaries probably reflect that…but Lids will probably go to college in a country with much higher costs. EEK! Good luck figuring out what to do!

      1. Yep, exactly. Tricky situation :/ Luckily my parents (and even my grandparents) are also putting a bit of money away for her each month which will be a huge help in the end.

  12. […] ups and downs this past month that I haven’t gotten into, but I am still trying to focus on helping to finance college for Stella and having faith that money issues will work out. That brings us to the present day where […]

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