529 Plan and College Savings: Should We Contribute?

With the arrival of our new baby, the question of whether to save for her future college education has been on our minds. We’re not dead set on a yes or no. Mrs. PT and I both paid for our college education with scholarships, grants, jobs, and loans (which we’re still paying off). We’re proud of that though, and we feel like we earned our education. We want our kids to be able to have that same satisfaction. But, we know we’ll likely be able to save enough for their college education if we started now.

To help us get some perspective, I reached out to some of my blogging friends and readers and asked them this question:

Do you currently use or plan on using a 529 plan to save for your child’s college education? If so, why? If not, why?

Their answers are below:

Sense to Save – We do not currently have a 529 plan for our baby (born Dec. 2008). Right now, we have a small savings account for us to buy unexpected things he might need. Once we get our car paid off, we’ll increase our retirement savings and start a college savings account for him. I expect that to happen sometime in 2009.

No Credit Needed – I do not use 529s to save for college, at least right now. I have three kids, and I’m working hard just to put $2000 per child in their ESAs. If, at some point, I’m available to fully-fund their ESAs and all of our our retirement accounts, I might consider opening 529s.

Free From Broke – We do have state 529 plans for both of our children. The NYS plan is administered by Vanguard who are known for their low fees. There’s also a nice choice of funds in the plan. And of course we get a break on our state taxes. We also like the flexibility in how the money could be used when our kids are in college.

Wide Open Wallet – I’m not currently saving for my kid’s college because I don’t think their college should come before my retirement. And I’m not saving as much for retirement as I would like. When I’m maxing out my IRAs then I will look into saving for college.

The Happy Rock – Not currently, but our children are young. We are still trying to figure out how we want to handle college for our children. When the decision is made we will use a 529 or an ESA. If we use a 529 I will most likely not us my state’s(NJ). I will scour the 50 deals for the top one for our situation.

No Debt Plan – We do not currently use a 529 plan to save for our kid’s education. We actually just started saving up money for kids in the future (none currently). We do plan to use a 529 or similar savings tool in the future, but I just haven’t had time to research them enough. Plus the amount of money we have set aside right now is pretty small. Once we get to a larger amount it will make more sense to open the account.

Budgets Are Sexy – Nope – but only because I don’t have any kids yet ;) If I did, however, Yes I’d hook it up with a 529 plan for sure! Not that I’ve researched it all that much, but I always here great things about it.

The Shauls – We have thought about it, but because we live overseas (and plan to for the remainder of our lives), it is hard to plan where our children would go to school. But our situation isn’t the most common in the States. If we lived somewhere, and it looked like we were going to be there for a good length of time, we would do it. It’s a good way to put money away for them, even if just to get them through the first year. We wouldn’t pay for their entire education, but enough to get them started. By then, hopefully, they will have acquired some healthy financial habits to carry them forward.

ABCs of Investing – We have RESP accounts set up for our kids (Canadian equivalent) although to be honest, it’s the grandparents that fund it. I think it’s a good idea to save some money for your kids education but I don’t put a lot of priority on it – ie it’s a “nice to have”.

Moolanomy – I am currently using 529 to save for my son’s college education. I chose 529 because of its low cost investing options, state tax deductibility, and tax deferred growth. I also like the fact that I could transfer the money other people in my family if my son doesn’t use up the money.

Rocket Finance – I don’t have 529′s for my kids because I can’t afford it right now, however I have ING accounts for all of them and I put any extra cents I can squeeze out of our budget into them.

Good Financial Cents – I currently have a 529 plan for my son. We are currently using an out of state plan because I felt the investment options were far superior than what my state offered. I also felt that it made enough of a difference to overcome the state tax benefit.

My Dollar Plan – We have about two dozen 529 accounts, so I think that makes me an expert…. oh no, wait, maybe a junkie. :) More about 529s. We use the Iowa plan for upromise contributions, the New Hampshire plan for the 2% cash back credit card, our Wisconsin plan for the tax deduction, and the Ohio plan because it’s my favorite – low expense Vanguard index funds. Sign up for the Ohio 529 and get a bonus.

Free Money Finance – Yes, we have a 529. Why? Because we’re probably not getting any financial aid (more) and need to save for our kids’ college. The 529 we’re in is also through our state and we can write off $10k in contributions each year.

Reader J – No kids yet, so I haven’t really checked into it too much. But Jesse at The Penny Saved brought this up; I recommeded doing the math of one CD/savings deposit with variable rates per week (given the plummeting rates lately, but bound to eventually return) vs a currently tax-deferred program. Things can change with new policy makers.

Thanks, everyone. You gave us a ton of information to pour over. I appreciate it.

If you have an opinion on 529s, I’d love to hear it. Leave your thoughts in the comments below.

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Last Edited: November 15, 2010 @ 7:54 pm
About Philip Taylor

Philip Taylor, aka "PT", is a husband and father of two. He created PT Money back in 2007 to share his thoughts on money and to meet others passionate about managing their finances. All the content on this blog is original, and created or edited by PT. Read more about Philip Taylor, and be sure to connect with him on Twitter, Facebook, or view the Philip Taylor+ Google profile.