Contributing to a 529 College Fund

Is saving for your children's education something you have been considering?

David's parents paid for his college education. I had to basically pay my own way and I am still paying that money back. Since we decided we wanted to do everything we could to pay for Willow's future education, we started a 529 for Willow last year, a few months after she was born. If you have been thinking about saving for your child's education, now is the time to start!! And, it's never really too late to start saving, if that's something you want to do for your child(ren).

The US Securities and Exchange Commission (SEC) has a great overview of 529 plans.

You may be wondering what a 529 is exactly? According to the SEC, "A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. There are two types of 529 plans: pre-paid tuition plans and college savings plans. All fifty states and the District of Columbia sponsor at least one type of 529 plan. In addition, a group of private colleges and universities sponsor a pre-paid tuition plan."

The difference between a pre-paid plan and a college savings plan is that with the pre-paid tuition plan you lock in today's rates on tuition (and sometimes room and board) at participating colleges. With the college savings plan, your child can attend any college with the accumulated funds. There are many investment options including stocks, bonds, mutual finds, and much more with the college savings plan. There is a great chart on the above link with a side by side comparison for pre-paid vs. college savings plans.

We opted for the College Savings Plan since we don't know if we will even live in the state we are in when Willow is ready for college and we didn't want to limit her choices for her education.

There are also tax advantages to saving for your child's education. They can be found in the IRS' Publication 970. You'll want to be well informed on whichever way you want to invest since many of the funds have management fees and the like. The SEC link above has a list of questions you'll want to ask before deciding on a specific fund.

With the cost of a college education rising significantly, a 529 plan may be a way to help your child afford an education that may be one day out of reach for lots of people due to soaring costs. According to a report, Trends In College Pricing, from the College Board, in the past 10 years, college costs have almost doubled. The average cost in the 96-97 academic year for a private 4-year college was about $13,000 per year. That same college year today costs just over $22,000 per year. For a public 4-year college the costs over the same period of time have gone from about $3,000 per year to nearly $6,000 per year.

However, it is important to note that you don't want to save for your children's college at the expense of being able to afford a home or contribute to your retirement. So, it's something to seriously consider before diving in. Good luck in whatever you decide!