With the holidays in full swing Vic has a gift idea for all parents (and/or aunts, uncles, godparents) of little ones. No, it’s nothing as cool as a Playstation 4, iPad Pro, or a Kylo Ren lightsaber. It’s something even better.
It’s the gift of a college education!
Whether your child is 19 months, 4 years old, or 14, it’s never too early or too late to start saving for their college education. As a big personal finance nerd, many of the stories I hear about people with a crazy amount of debt usually involve student loans. Since I know my daughter is destined to be a world class doctor (she was named after a famous surgeon after all), we’re going to do everything we can to ensure that she doesn’t graduate with a loan the size of a mortgage.
Addie’s College Fund
The fund we opened for Addie is a 529 Plan, which I think is the best way to save for college. Much like a Roth IRA, the money you put in a 529 Plan gets invested and grows tax free and can be spent towards qualified college expenses. The website Saving for College lists the top 7 benefits of a 529 Plan (which you can find in more detail here):
1. 529 plans offer unsurpassed income tax breaks
2. Your own state may offer tax breaks (sadly, California’s 529 plan does not)
3. The donor stays in control of the account
4. Low maintenance
5. Simplified tax reporting
6. Flexibility (easily change plan providers, change beneficiaries)
7. Everyone is eligible to take advantage of a 529 plan
Since California does not offer any tax breaks for their plan, we enrolled Addie in Utah’s 529 Plan because it uses Vanguard funds so the costs are low.
Gift Giving
If there’s one reason I can recommend that every parent should open a college fund, it’s because of the gift giving aspect of 529 Plans. Addie’s plan makes it pretty convenient for friends and family to contribute to her fund. When it comes to birthdays and Christmas, donating towards a child’s education is a great option for friends and family. Kids don’t need that many toys. Even though Addie will get a lot of toys for Christmas, I’m pretty sure she’ll forget about most of them in favor of her Minnie and Mickey Mouse dolls.
For Addie’s first birthday in April, I included a link to her gift giving site on the bottom of her invitation. As a result, she received about $700 towards her college fund. Quite a few of our friends and family were more than happy to contribute when given this option rather than purchase an outfit or toy that she’ll eventually outgrow.
Yes. She still received plenty of toys.
Until Addie is old enough to handle her own money, every single penny that she receives will go straight into her 529 Plan. Shout out to my friend Haydee for already donating to Addie’s fund for Christmas, who told me she felt great knowing that she’s contributing towards something that will benefit my daughter in the long run.
What if My Child Doesn’t Need the Money
When Addie eventually goes to college, there might be a chance she won’t need the money we saved for her. She might receive scholarships, grants, or end up making millions from being a child actor. Having too much money saved up for college is like having too much food at your wedding reception. It’s something NO ONE complains about. It’s a great problem to have. Wouldn’t you rather have too much than not enough? If Addie ends up not needing the money we’ll most likely transfer the funds to another family member that could use it. We could also pull out the funds and incur the 10% penalty on the earnings (in addition to taxes). Done and done.
Some College Savings is Better than No College Savings
Of course, there are other things you should do first before regularly contributing to a college fund. Paying down debt, having an emergency fund, and funding your retirement are some of the things that should be a higher priority than contributing to your child’s education. While there are many ways Addie can fund her college, there’s not much you can do about retirement unless you save for it.
That being said, if you can find room in your budget – start saving. Even if you only put $25 a month in your child’s college fund starting at birth, your child will have almost $11k by the time they turn 18 due to the magic that is compounding interest. Before I got laid off we put around $250 a month towards Addie’s education. Since my wife and I are good about keeping our expenses low, we’re still able to contribute between $50 and $75 a month.
With the cost of college increasing each year, I don’t know if we’ll have enough to fully fund Addie’s education. Hopefully she’ll have scholarships, grants, and work money to help offset the cost. At the very least my wife and I will be happy to know that we did our best to help contribute.
Thinking about my daughter growing up makes this dad a little teary eyed. Kids really do grow up too fast. It seems like it was only yesterday that she was making a scene hiding underneath her high chair at a restaurant.
Wait. That was yesterday.
Additional Resources About 529 Plans
How to Spend from a 529 Plan – Fidelity
Best 529 Plans to Help Pay for College – Clark Howard
Saving For College Website
Addie will be one very lucky girl. .. Many brainy people have to forego a higher education, because their family was not so forward thinking, and there is no money when the time comes. ..
LikeLiked by 1 person
it’s either that or they end up taking a huge loan to pay for everything! If I can offset the cost of college at least a little bit, giving up an extra dinner or two out is worth it.
LikeLike
Oh my gosh, these photos of Addie are so cute! I especially love the one where she’s holding Mickey and Minnie. That’s fantastic that you’re doing so much to plan for her future when she’s still so young. 🙂
LikeLiked by 1 person
Thanks Sarah! My parents didn’t save so we ended up getting loans for college. Fortunately, the loans were paid off a few years ago. Like the Lannisters, we always pay our debts. 😉
LikeLike
We’re doing the 529 contributions these news few days too, it’s just a no brainer right now and I’m glad we can!
LikeLiked by 1 person
That’s great Jim! It’s something I think every parent should do. Even if you can’t afford to put anything regularly, friends and family would be happy to donate during Christmas and birthdays.
LikeLike
Wow! I had no idea there were gift-giving sites like this that accept contributions, likely because the millennials in our families don’t have kids and the Gen-Xers, well, have different opinions about college savings. My family didn’t contribute to my education, so I opted for loans. It’s wonderful you are thinking ahead to save her from much of (if not all) of that headache!
LikeLiked by 1 person
Thanks for the kind words Claudia! My parents didn’t really think about college savings either so we did opt for loans too. I hope my daughter has a fat college fund by the time she’s 18!
LikeLiked by 1 person
This is such a great idea! We don’t have children (yet), but we will probably have to do this too 🙂
LikeLiked by 1 person
I got the idea when I saw a parent include the gift giving link for their child. I’m more than happy to contribute to a child’s college fund!
Thanks for reading Michelle!
LikeLike
Ah, I love this! I have a future college tuition fund I’ve started through Betterment, and I am thinking of starting a 529 plan once our family starts to grow. 🙂 Addie is just SO cute, too. It says a lot that you are already saving for her future! I think it is also a fantastic idea that friends & family can contribute vs. just giving toys as a gift.
LikeLiked by 1 person
I always say she’s so cute because she looks like her daddy 🙂
I agree – I’d love it if more parents provided that option when it comes to birthdays and Christmas. I always ask if they setup a fund yet. Sadly, many don’t.
LikeLiked by 1 person
Love this idea. I wish more people in my family would provide that option. I’m always trying to something more educational with the kiddos since I know they’ll get more toys that they could ever want (or appreciate).
LikeLiked by 1 person
Thanks for reading Adam! Yeah – it’s a shame that more people don’t have this option for their kids. I’m happy to say that a few people I know have opened a college fund for their kids since this post!
LikeLike
May I ask if you have a goal amount for savings? this is something I struggle with and a topic I will be writing about as my kids grow an dI try to figure out our own answer. So stressful how quickly those college costs are going up! I am serious considering for my poor kids (haha early brainwashing) to think about Germany or France (where students can go for free or almost free and school is in English) as an alternative…. here is where we are… https://wordpress.com/post/traveltravelandretire.com/274
I have asked family to do this as well but they are not keen (you should have seen their faces when one Christmas I suggested instead of buying each other crap we dont need (beyond 1-2 things) if we could instead chip in for a water well or a cow somewhere where it could make a huge difference for a family!).
It sure is a hard thing to plan for and talk to people about sometimes. As I posted on my blog ‘you only have them for 18 summers’ – that quote really got me freaked out and made me start saving NOW!
LikeLiked by 1 person
18 Summers – that does make the time seem like it’ll go by even quicker!
I don’t have a specific goal, but for right now we’re contributing a minimum of $250/month, with any excess money at the end of the month thrown in (after we do extra investing).
It’s tough because I know conventional wisdom says you should save for your own retirement over your kid’s college, but I would rather split that cost and try to do both 🙂
LikeLiked by 1 person