Sierra and Steve welcomed a baby boy, Emery Preston, on December 18, 2017! My first thought was we need to open a 529 plan! Just kidding. My first thought was Mama and baby are healthy! Then I thought about the 529 plan.
Basics of the 529 Plan
A 529 plan, also known as qualified a tuition plan, allows parents to save for the cost of their child’s education.
Here are the basics of a 529 plan, according to Consumer Reports:
- Money can be withdrawn, free from federal and state taxes, for qualified higher education expenses
- Money can go to a sibling, other family member, or to the parent for higher ed expenses
- If not used for higher ed expenses, money can be withdrawn, taxed at your state’s rate, and with a 10% penalty on earnings
- 529 plan money recieves favorable financial aid treatment
- Every dollar saved can reduce student loan debt by $2
- Choice of how to investment the money, similar to a 401k plan
College for Emery
So, how much do we need to save? Business Insider estimated that if we want Emery to attend an in-state public university, we’ll have to save $374 a month for the next 22 years. Whaaat? Consequently, we’re considering Pennsylvania 529 Plan, ranked by Business Insider as #4 of the 10 best college savings plans in America. Be sure to check out Savingforcollege.com to learn about 529 plans. We’ll be using the site to determine if grandparents or parents should open the account.
Farnoosh Torabi recently interviewed Abby Chao from College Backer on her excellent podcast, So Money. College Backer is a new site where parents can open a 529 college savings plan and family members can contribute directly to the plan for the child in their life. Think about the money you’ve spent over the years on birthday and Christmas gifts for your nieces, nephews, or grandchildren, which were quickly forgotten or discarded.
Finally, a reminder that while I’m pretty good at helping people change their behavior, I am NOT a financial expert. This information is based on my own research to help Sierra open a 529 plan for baby Emery.
Sierra Opens a 529 Plan
Wow! When we first talked about this weeks ago, I did a quick Google search for 529 plans. I immediately was engulfed in small print, so naturally I stopped before I even got started.
I just set up an account on College Backer. It was easy and took a whole 10 minutes! I even did it on my phone while breast feeding! Why can’t all finance be this easy?
Anyway, one thing that struck me was how much I need to contribute in order to meet a goal. Also, how that goal is still only 30% of the projected amount needed to send Emery to a public university. College expense is overwhelming, and I can’t imagine getting that memo when he is a junior in high school. As parents it is so easy to put later, abstract expenses off in order to focus on today’s very real expenses (like diapers!). I am happy to see that there are now resources to encourage parents to be more on the ball with their child’s future!
Photo Credit: Christine Horton Photography