Some 20 year old’s are getting smarter now a

Free Range Parenting

days. I recently had a conversation with a recent 23 – 24 year old employee and he mentioned that he and his girl friend are getting ready to save for their kids (who are not born yet). Kudos to them for setting their priorities at such a young age.

Here is a link to a cheat sheet to get you started: 529StartersCheatSheet

As parents, we worry about which colleges would make sense for our kids. Since my daughter is 6 years old she has 12 more years before she goes off to college. To me that is not that far. In my mind she was just born yesterday!

I have heard some horror stories about kids graduating school with 120,000 in debt. Let’s put this in perspective. Say, you graduate with 120,000 dollars in debt, what is the probability of someone is getting paid 120,000 + right out of college to pay off the loans. It would take you a while to pay off the debt.

I recently stumbled across Dave Ramsey’s baby steps, and would highly recommend looking at his videos on youtube. His second step after saving for an emergency fund is to look at your existing debts including student debt. FYI – I don’t get paid to plug Dave Ramsey.

Fidelity Investments has tried to clarify college savings with a new rule of thumb: Multiple your child’s age by $2,000 to stay on track to cover half the average cost of a four-year, public university.  What does this mean.

So for my daughter it would be:

6 x 2000 = $12,000

This is how much I should have saved up until now  to reach a decent savings for her.

No but seriously, let’s look at some options to invest or put aside some money for your child or children for their education:

  1. Good old method of Saving: If you are earning a paycheck, set aside a percentage of your income and put it in a savings account. However with savings rates pretty low (averaging 1.60%), if you invest say

$500.00 at an interest rate of 1.6% with a very conservative estimate of $50 a year, in 5 years your money will grow to approx.. $800.00

Let’s look at the 529 plans:

  1. Let’s walk through some benefits and disadvantages of a 529 plan:

Benefits:

  1. First (I did not know this until I ended up researching this for this post), there are two kinds of 529 plans.
    1. Direct Sold and
    2. Advisor Sold

Direct-sold 529 plans generally have lower investment fees than advisor-sold ones. However, advisor-sold plans tend to offer more investment options.

  1. A 529 plan allows a person to grow his or her savings on behalf of a beneficiary, who could be a child or grandchild, a spouse or even yourself. A 529 plan may be established by anyone, including non-relatives, for a designated beneficiary.
  2. Earnings from a 529 plan are exempt from federal income taxes, providing withdrawals are used for qualified educational expenses. Distributions that are not used to pay for qualified educational expenses are subject to taxes and a 10% fee, with exceptions for circumstances such as death and disability.

Disadvantages:

  1. The money must be used for college, if you not you are penalized 10%.
  2. Could impact your prospect for getting financial aid for your child, if you have saved too much.

 If you would like me to cover financial plans out there for 529 plans please leave a comment below.

Resources:

Color Coded chart guide to the best 529 investment plan

https://www.forbes.com/sites/baldwin/2016/03/03/guide-to-the-best-529-plans/#5645fbf5323c

 

Advertisements
%d bloggers like this: