Top 529 College Saving Account Questions ANSWERED!
Marc and I have been contributing to our two kids’ college 529 plans for the last 18 years!
It was/is a longtime goal of ours to pay for their entire education and we are now at the point of having enough money in their accounts to achieve that goal!
Here’s a quick Q&A from my Instagram followers about college savings. I hope it’s helpful!
Q: Why do people open 529 accounts?
A: It allows you to save and invest money towards your child’s education. Earnings are tax-free.
Q: How do you estimate how much you should save?
A: 1) Google the current cost of your public, in-state colleges as a general guide. Research the average annual increases as well before you project the total cost. Determine your total goal (100%, 50%, or 25% of total cost?). Estimate annual contributions and growth of the investment within the plan.
Q: How much have YOU saved for your two kids?
A: We have saved $100k per child (2). That was my initial goal 18 years ago and now it’s been met. We continue to save because it’s likely that my daughter will go to a private university (4 yrs from now) that is much more expensive. Never thought I’d consider a private university, but here we are. Hoping for some academic scholarship money as well.
Q: What happens if the child doesn’t go to college?
A: The money can be used for other types education as well - trade schools, seminaries, online courses, community college, study abroad, etc. It also can be used towards private elementary and secondary school tuition. You have the ability to change the beneficiary to another family member (yourself, niece or nephew, or a future grandchild!) OR you could opt to withdraw all of the money with a 10% penalty on your gains. You’ll also be subject to income taxes on the gains. You may have to pay back any state income tax deductions you previously claimed as well.
Q: How do you choose a plan?
A: Check out your own state’s plan to see if there is an added state tax benefit. Sometimes there are credits and write-offs! Otherwise, you can use ANY plan and still use it for ANY school your child goes to. The state doesn’t matter. Compare plans - performance, management fees, the investment options within the plans. I don’t find them to be all that different, but do your research. Google “best state 529 plans”!
When thinking about 529 plans, don’t get overwhelmed with thoughts of the overall costs of college. It’s discouraging and non-productive!
Just get the ball rolling by setting it up with a small contribution, figure out where this particular savings account fits into your financial priorities, set a goal, plan, and GO!