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When Scott and Jennifer Perry found out they were expecting their first child, they kicked off preparations by doubling down on their savings.
Sure, putting the nursery together was important, but Scott, a self-taught personal finance aficionado, wanted to make sure the family’s finances were in order.
But like many new parents, after Isaiah’s birth, the Raleigh, North Carolina, couple still had lingering financial matters on their to-do list. Near the top of the list? Invest in their son’s future.
The task proved daunting. After hours of research, Scott settled on a 529 college savings plan, a tax-advantaged account to help save for education expenses. But then he sunk more hours into figuring out which 529 plan was the best fit — because, of course, there’s more than one option.
On top of sleepless nights, you can imagine planning for a new child’s education can easily become exhausting.
Here’s the good news: There’s a robo-advisory service called CollegeBacker that can help you start a 529 plan in just five minutes.
Why Many Experts Recommend a 529 Savings Plan
In 2018, one year at a four-year college, including board and books, averages $19,800. In 2036, that average will nearly double, costing between $37,000 and $39,000 a year, according to a Penny Hoarder projection analysis of average growth rates provided by the National Center for Education Statistics.
This doesn’t take inflation into account, and still. Life’s going to be expensive 18 years from now.
Like Scott alluded to, there are several — well, a lot of — ways to jumpstart your child’s future. He considered everything from a Roth IRA (though your child needs earned income) to a Coverdell Education Savings Account.
He landed on a 529 college savings plan for a few reasons, including:
- Contributions are invested in public markets, meaning your money likely won’t sit stagnant; you’ll get to watch it grow.“I can’t stand the thought of funds sitting there stagnant for a long time,” Scott wrote in an email. “You got to start early and get that compound interest working!” However, he notes there’s risk, too, like any other kind of investing.
- These plans are tax-advantaged, meaning your money both grows and can be withdrawn free of state taxes.
- The parental figure holds ownership and control over the plan, so kids can’t tap into it for whatever the heck they want. As much as Scott loves his son, he doesn’t plan to just throw cash at him.
- The plans don’t have super strict eligibility requirements or contribution minimums. Scott says he doesn’t contribute a huge amount each month. Plus, it’s nice knowing he wouldn’t be penalized for not contributing if there was any sort of emergency.
- The money in these plans is accepted by nearly every college in the U.S. and even many abroad.
Additionally, with the new tax plan, you can use 529 funds for private schooling, kindergarten through 12th grade. This option wasn’t around when Scott signed up for his plan, but he appreciates knowing this, as it’s not a 100% guarantee his kid will even go to college.
Speaking of… What if Isaiah doesn’t want to go to college? What if he wants to start a business instead? The Perrys could use the money for another immediate family member. They could also withdraw the money from the 529 plan and pay a 10% penalty.
How to Sign up for a 529 College Savings Plan
See? There’s a lot to weigh when it comes to establishing your kid’s education fund.
But say you’ve decided a 529 savings plan is your best bet. Great! Now you’ve got more research to do to figure out which 529 plan is a good fit.
But we know you don’t want to get into that. We don’t even want to get into it.
Instead, you can tap into CollegeBacker, a robo-adviser that specializes in 529 plans. The platform operates on a pay-what-you-can model, meaning you can pay a monthly fee of as little as $0. Additionally, you can open an account in about five minutes with no minimum deposit.
You can also crowdfund your kid’s education through CollegeBacker. Maybe instead of showering your kid with extravagant toys, Aunt Mary can contribute a little bit of money to their 529 plan.
To get started, you’ll calculate your savings goal. Enter the age of your child and what type of university you’re saving for. Then CollegeBacker will show you how much you need to save each month. You’re welcome to adjust this number (or pause withdrawals) based on your budget at any time.
Continue through to create a profile and build your team of contributors.
The money you contribute will be held in a state-sponsored 529 savings plan.
When your kid is ready to head off to school, they can use the money in conjunction with scholarships and financial aid. They can even use the money from the 529 plan toward a computer.
Once your kid is settled in the dorm and you say your teary goodbyes, it’s time to take a deep breath — because you did it! You were super smart and started saving early!
Carson Kohler ([email protected]) is a staff writer at The Penny Hoarder.
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