If you were to ask me about college savings anytime before last month, I would have told you that we were 100% going to open up a 529 the second our baby popped out. But as much as I wish I could tell you we’ve since obeyed our own plans, the fact is we still haven’t. And it’s not just because we’re exhausted or lazy ;)
The truth is, an itsy bitsy part of me started second guessing the whole “college savings” plan to begin with. I don’t know where it came from, or why it’s happening now after all these years of being sold on them for so long, but a few weeks ago I got this weird little feeling that maybe – just maybe – my son would want to start his own business one day like his dad and try and skip out on college altogether. And for the first time in my existence I caught myself thinking, “Huh. Would that BE so bad?”
Generation after generation of my family all graduating college, and here I am nonchalantly throwing it out the window. Who am I??? Haha… But at the same time, how could I deny the power of entrepreneurship if the whole 18 years before he’s ready to leave the house I’m preaching on about small businesses and how important they are? Wouldn’t that make me the biggest hypocrite? Or do I hold the party line and make him 4 more years and THEN open up the flood gates to 24 hour “kill your business!” mode? If he doesn’t drop out and start the next Facebook? ;)
I don’t know what I must have drank that night, but the doubt was a creepin’ in and my stomach wasn’t too happy about it. So naturally I brought it up to the Mrs. in hopes she could shed some more light on things here (and/or set me straight). And WOW did she give it to me! Haha…
I won’t utter the words that came out of her mouth, but here were the main takeaways ;)
- There’s no way in hell our kids aren’t going to college – don’t ever mention that again.
- You don’t even know if any of our kids will even LIKE business?
- And what about those other children of ours? No college savings for them either?
- Aren’t you the one always saying how college is MORE than just an education? It’s where you learn about life and network and have the time of your life??
- Did I mention never to bring up not going to college again?
Haha… man. When in doubt, ask the wife! ;) I must admit it felt good to be back into reality though… College IS more than just a degree – it’s a part of your life for exploration and networking and just being an adult all on your own! (For those who don’t commute, at least) I wouldn’t change my past for the world, and if I could wait until after college to start a biz, why couldn’t my children too? There’s no way I’d be where I am today without that degree, what the hell was I thinking??
And it’s so true – odds are all my children WON’T wanna start their own businesses, so whether it’s Baby $ in that category or another, putting money aside for college would indeed be the smart and responsible thing to do here… Whether it’s a 529 or not (though I haven’t researched those other avenues all too much, outside of simple comparison charts).
So why a 529?
Well, everyone and their mothers just rave about them. I have yet to see a real negative review really, although I’m sure there are tons of them out there. If you don’t already know what a 529 is, here’s a good and quick recap by Trent from The Simple Dollar:
A 529 plan is simply an investment account with a few tax advantages that make it very useful for saving for higher education. To be specific, any interest or investment income earned in the account that is then used for higher education is exempt from federal taxes (and from state taxes in many locations). In some states, the contributions themselves are deductible from state taxes.
So it’s pretty much an account where you can invest your money now to grow and grow and grow, and then in the future you can dump it out tax-free and apply it all to college stuff. Tuition, room and board, books, etc. And if you decide to spend it elsewhere, well, you’re penalized and pay a steep fee on top of all the taxes (at least for all the profit your account has made since you opened it). It’s pretty similar to a Roth IRA from what I’ve seen so far – only instead of tapping it when it’s time to retire, you tap it for when someone needs an education (and you can put a lot more into a 529 than a mere $5k/year). Which sounds really good to me!
Here are some good resources I’ve found so far on these guys:
- An Introduction to 529 Plans @ The SEC (Boring to read, but quality information)
- College Savings Plan Comparison Chart @ Finra (Easy way to compare a few of the avenues)
- 10 Things You Didn’t Know About Saving For College @ The Huffington Post (A LOT more fun ;))
And here’s a list of some of the pros and cons of these 529s:
- PRO: Earnings are tax free!!
- PRO: You can divide up the money to more than one kid
- PRO: You can even use it for other family members like siblings/parents/etc!
- PRO: You can use the money all across the country, and sometimes internationally
- PRO: You can always take it all out later worst case scenario, and then just pay the dues (which sucks, but hey – at least you don’t lose all your money! Which was something I didn’t know about and was the main scary factor here)
- CON: The money *has to* be used for college-like stuff – no changing your mind and splurging later on something else ;)
- CON: You’re banking on the idea that someone in your family WILL indeed go to college. If they don’t, it’s time to pay the piper.
- CON: It’s one more account to keep track of and stay on top of. Rather than, say, a savings or current investment account (though this applies to any outside account too, not just the 529s)
5 Green ones and 3 Red ones, not too bad ;) And there’s also two different types of 529s too – one where you just contribute as you wish every month (just like with other accounts), and then another where you can actually PRE-PAY for $XXXXXX and have it all taken care of for whenever that magical day comes. Which is kinda freaky cuz you have to follow a bit more of the rules I believe with this one, as far as *where* the beneficiary can go to school and all that. But I really didn’t look into it all that much – maybe you guys have? Or are actually DOING this kind?
For us, I think we’ll stick with the normal “pay as you go” method and see how it pans out… I have a chunk of $350 waiting from the other month when I won Mr. Ramit’s money, so we’ll start there and then add a couple hundred as time goes on until we’re more comfortable with a monthly stream. Unless it cuts down on costs or something if we have to automate it more? I’ll find out more about that in a bit… And then have nightmares of this below quote I snagged from the AP:
“Parents of a baby born today would have to save $385 a month in order to afford housing and tuition at the average state school…”
And that’s just for ONE! Imagine two or three? Or seven or eight? Better be some damn good football players! Haha… And just goes to show how serious this stuff is – you can’t wait ’till the last minute.
So those are my thoughts on this 529 stuff. We’re planning on pulling the trigger at the end of the week with USAA (naturally), so if you have anything you’d like to say to help sway me one way or the other, now’s your time to do so! You might be able to convince me a bit more, but it’ll be much harder with the wife ;) All I know for sure is that we gotta start saving something, somewhere, and we gotta do it NOW. I’ll need even more money later when it’s time to invest in their little businesses! ;)
(Photo by michaelk.sutton)