I know this blog covered some of the changes and updates to the 529 plan back in March. You can read 529 Plans May be More Valuable Than Ever to learn about the big Roth rollover opportunity. Given that yesterday, May 29th., was 529 Day, or 529 College Savings Day, it seems like a good time to share more about the 529 Plan. 529 Day was created to raise awareness of these plans and to increase college savings in general.
Many parents and grandparents want to pay for as much of their child’s education as possible. Sometimes, this is prioritized over their own retirement. As a reminder, it’s always best to fund your own retirement first. For parents who come from a culture of highly valuing education, this can be really difficult to accept and put into practice. After all, we want the best for our kids. If you truly want the best for your child, focus first on your own future security and then contribute to and fund a 529 plan. Your safety, security, and independence in your old age is one of the best gifts you can provide your child. It’s great that you want to pay your child’s tuition. However, keep in mind that you cannot borrow for retirement, but if absolutely necessary, your child can borrow for school.
For all of you who do wish to contribute to a 529 plan, here are a few key resources and tips for you. If you read last week’s blog post, it’s ok to have competing goals like retirement and college for your child. You just need to work on a structure and plan for those competing goals. Now, on to those tips and resources.
Save for retirement first, college second (see above).
Consider your limits on help. If you are on track with retirement, and you have enough to cover 70% of your child’s education, for example, that’s a huge help! Let that be your goal.
Ask relatives to help. There’s no shame in letting family and even close friends know that your child doesn’t need anymore toys, gift cards, or birthday money. Instead, ask them to make that gift as a contribution to their 529 plan account. Today, many 529 plans offer shareable codes or links for this very purpose. It allows non-account owners to contribute to specific plans. This makes it easy for others to make contributions. If the code or link doesn’t work with your plan, keep in mind all you need is the account information and you can make a direct contribution to the account as well.
Expected cost of in-state college tuition by 2040, $213,799. Fully funding would require an estimated $515 per month.
Start early! Ideally, open your child’s 529 plan at birth. I can’t stress this enough; earlier is better. Especially now given the Roth rollover option, the older your child’s account the better. One, it gives the investments time to grow and compound. That alone is galactic magic! Two, the account does need to be at least 15 years old to be Roth rollover eligible. Open that account at birth even if you can only contribute the minimum to get the account open!
Know the difference. There is the 529 savings plan and the 529 prepaid tuition plan. The 529 savings plan is the most versatile and the best option in my opinion. The 529 savings plan allows you to select investments, pays for room, board, equipment, and supplies in addition to tuition and fees. You control your contributions so you can contribute more when you have extra cash and less during lean times. Your child can generally choose any school nationwide, and in some select instances, even international! Plus, you have the option to change beneficiaries and can potentially even rollover leftover funds to a Roth account. With the prepaid version, you are usually restricted to in-state tuition (and certain fees) only, restricted to investment options, and limited school choice (usually in-state only). You have to know from a young age exactly which state you’ll be living in and that your child is going to go to a school in that state.
I’ll leave you with a few free resources. Please note that this is not an endorsement, but simply for educational purposes.
SavingForCollege.com is a tremendous trove of information about 529 plans. You can learn about plans, college costs in general, and they offer a basic college cost calculator.
Capital Group also offers a robust calculator. You can adjust inputs as needed to see if you can save more, save less, or target different schools to shop affordability.
SallieMae.com has too many features to go into. However, this site is a good way to gauge the cost and type of loans and to learn about scholarship opportunities.
As an independent Certified Financial Planner™, I can help you with 529 plan and other decisions. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #stressfree #IRS #Roth #IRA #RothIRA #529 #529Plan #college #saving #budget