Happy Thanksgiving! I recently sat down with my daughter to read a story sent home by her teacher as she learned about the first “Thanksgiving”. I had honestly forgotten that nearly ½ of the settlers who arrived on the Mayflower perished in their first winter of 1620-1621. With the COVID-19 pandemic surging across the country, it was a reminder of the good fortunes we now enjoy.
I’m thankful for:
- The good health of family and friends
- Living in a community where leaders demonstrate wisdom and foresight
- Clients like you and the opportunity to be invited into your life
- Cozy flannel sheets
- My daughter’s love for art and creativity (even when it results in the kitchen island being an absolute disaster every day)
- Spending Fridays with my adventurous two-year old son
- Neighborhood walks with our devoted dog Daisy
- Local small businesses that make our hometown unique
- Steaming cups of morning coffee
- The promises of 2021, especially the joy and hope of adding a new baby to our family in May
I’m also thankful for college savings. Although I grew up with college-graduate parents and we almost always had enough, there were no college funds. There were real questions about what I could afford and how I could afford it. Now, that I’m a parent myself, the question is “How much should I save for college for my kids?”
While I relied on both need and merit-based financial aid, the situation will be different for my children. But before I get ahead of myself, the first question to consider is whether now is the right time to make college fund contributions. Some indications that now isn’t the right time include:
- Holding personal student loans with interest rates in excess of 3%
- Not actually having children (or nieces, nephews, etc.) that you want to save for yet
- Carrying high interest consumer debt
- Regularly saving less than 10% of net income including retirement plan contributions (
(if any of these are the case, reach out to Betsy for tips or a consultation)
The second question is “What type of account should I use to save for college?” 529 plans are simply a fantastic financial product. Many states offer tax-deductible contributions, growth occurs tax-free, and withdrawals are tax-free when used to pay for qualifying expenses. I love that the account owner controls the assets and can redistribute them as they see fit. If one beneficiary decides to attend a military service academy or otherwise gets a scholarship, the 529 can be held for graduate school, re-designated to another beneficiary, held for a future generation or withdrawn without penalty up to the value of attendance. While non-qualified withdrawals are penalized, there are many ways to maneuver the account.
A 2018 survey by Sallie Mae reported that 6 in 10 parents save for college with an average account balance of just over $18,000. (While that sounds like a lot, it’s not even the average cost of attendance for one year at most public universities.) 30% of those savings balances are in 529 plans, followed by savings and then brokerage accounts. Perhaps the most useful statistic is that parents who have worked to create a plan, either on their own or with the assistance of a financial planner, have account balances over twice as high as those who haven’t. Only 32% of parents were reported to have actually researched the cost of college. After reading this survey, it’s clear that I’m thankful to have this kind of data available at my fingertips!
One of the fears that I hear from parents is that their kids wills squander their college years if they don’t have any proverbial skin in the game. Based on my interactions with young professionals, those who had parents who supported them through college were tremendously grateful and recognized their blessings.
The Bottom Line
Parents who plan to support their kids in and through college are wise to research the actual cost of attendance instead of guessing or basing their assumption on their own experiences. It’s well worth the time of learning about 529 plans and establishing regular, monthly contributions. I’m thankful to have 529 plans as tool for supporting student toward their educational and career goals. If you are considering putting a college plan in place or making an update to an existing strategy, reach out to Betsy at R&V Personal Finance, LLC to get your questions answered.