I’ve been getting a ton of questions lately about my 529 plan decision. As you know, with the arrival of little Miss PT, college savings has been a hot topic around here. And it seems with the start of school, people are starting to think more about saving for their child’s future education. Here’s a recent question I received from a friend and reader:
“What do you think the most effective college savings plan for our kids is? A 529? I would love your input. Hope you guys are well. I’m sure little Miss PT is growing like a weed. Keep it up man!”
My response, which gives you some insight into what I’ve learned about 529s, went something like this:
Just Start Now
I heard some advice once about college savings that sounded pretty good: “just start now.”
In other words, don’t get too caught up in the different kinds of plans/accounts. Just pick something and go for it. The truth is, a majority of folks out there wait till it’s too late to start doing anything. And it’s not because they didn’t have the money. It’s because they thought about it a couple of times over the years and never acted. Either because they were confused by the choices, or too lazy to set it up. Had they just started an automatic savings withdrawal to a CD or simple savings account they’d be better off than where they find themselves.
Honestly though, I’m currently one of these people. I haven’t decided on a specific place to stash my college savings. Although, I think I’m close. I really like what I hear about the Ohio College Advantage 529 Plan. The fees are low, fund options high (they have Vanguard funds), and you can use the proceeds in any State, not just Ohio.
Local and Other Considerations
You live in Texas and so our situation is pretty good. You don’t pay state income tax. Therefore, there are no college plans that are particularly advantageous for Texans, unless you are dead set on sending your kid to a Texas school. In which case, there are prepay plans that might be better for you. Bottom line, you’re more free to look at another State’s plan. Most plans will let you participate in their plan and use the funds anywhere.
That being the case, the next thing you need to worry about is fees, flexibility, and fund options. CNN Money, Kiplinger, and the like are always ranking 529s based on these factors. Find one of those lists and narrow down your choices. Then pull the trigger and start saving.
What to Invest In
Once you have the 529 plan set up, you’ll need to decide what to invest in. Most plans offer target-date or age-based funds. These fund accounts get more conservative as your child ages. That way, when your child is 16 and the market crashes, half your investments won’t be taken. By then, you’ll be in more conservative investments.
My Game Plan
So, here’s what I’ll be doing asap:
- Choose a 529 Plan and Open an Account
- Start Funding a Target Date Fund Within the 529
Retirement Before College Savings
Just a quick note to add that I think it’s important to take care of your retirement needs prior to considering college savings. Not to say you need to have your retirement fully funded before you save for your kids. You just need to be making the maximum contribution needed to help you achieve your retirement goals and then think about college savings. This is just my view. You may take a different stance.