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!