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Lesson One: Start a 529 college savings plan for your kids

Financial service companies aim to educate households on 529 Day

Take a look at this month’s calendar and you probably wouldn’t notice anything special about Thursday. The date, May 29, is not marked in history by an event to be remembered or anything else special.

Yet a number of financial service companies and other organizations are using the date, 5/29, to educate families on the benefits of a 529 college saving program.

These tax-favored savings and investment plans were created in 1997 as part of the IRS Revenue Code allowing funds to be contributed to a state-sponsored plan where assets grow tax-deferred and, if used for qualified college expenses, withdrawals may qualify for tax-free status.

529 Day is the opportunity to educate households about the benefits of planning ahead for the ever-rising cost of a college education. And a lot of work needs to be done. A survey from financial services firm Edward Jones finds 69 percent of Americans are clueless when it comes to using this plan to cope with college costs.

Lack of planning can create long-term burdens for households. The Consumer Financial Protection Bureau calculates student loan debt now stands at $1.2 trillion, more than the total credit card debt.

And, the Institute for College Assess and Success figures the average borrower will graduate with $26,600 in debt.

“Without a doubt, the cost of college can be a daunting figure for families to navigate. Tackling this goal over the long-term can reduce much of the stress caused by those costs,” said Greg Dosmann of Edward Jones.

Here in California, the 529 plan is called ScholarShare. The program allows for investments of as little as $25 to get started and can provide a systematic investment plan allowing automatic monthly contributions.

The plan offers a wide range of investment options ranging from actively managed stock and bond funds to passive index funds. ScholarShare also offers age-based funds that adjust their portfolios toward less-volatile investment as the beneficiary gets closer to the start of college.

As attractive as 529 plans may be for college savings, many households do not have the option of investing for both retirement and for the college costs of their children.

“Our research shows that over a quarter of parents are losing sleep worrying about college costs. And we hear from parents that saving for college is an emotional decision. They feel overwhelmed by not only the costs, but also making the best decision for their child's future,” said Tom Kazmierczak, head of retirement and college products at T. Rowe Price.

He suggests parents get started as soon as possible in their college savings efforts and, “when friends and family ask for gift ideas, parents should suggest that people give to the kids' college savings plan. As kids get older, they too can contribute to their plan by saving money earned from baby-sitting and other work.”

Bottom line, very few people have saved too much for their kids’ education. However, starting early and taking advantage of the years from birth to the start of college may be the best strategy.

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User Response
1 UserComments
Nadine 5:12pm May 29, 2014

Lesson 1: Taking the first step can be challenging. We see this everyday at giftofcollege and agree that opening a 529 account, which is dedicated to college savings is a move in the right direction. Next step is automating deposits, which forces you to pay yourself first. Then encouraging friends and family to contribute can be as easy as signing up for our registry and planting your link on Facebook. You'd be surprised how relieved relatives are to be able to pull out a credit card and fast-forward their gift giving. While following you they will share in the hopes, dreams and progress of your child's future. little today. Big Tomorrow.

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