Apr 162010

Yup…Noah’s not even 2 months old and we’re already stressing about sending him to college in 18 odd years.  According to savingforcollege.com it will cost us upwards in  $300,000 to send Noah to private out of state college.  Make that an in-state public institution and we’re only dropping just over $200,000 – ONLY $200k!  And that’s assuming that he only goes for 4 years! Kids these days are taking 5 sometimes 6 years to complete school.  Ack!

DH and I would like to be in the position to pay for our child’s education and know that we would like to have two kids so doing the math we’re looking at a cool half million dollars (almost) to have saved up by the time they reach 18!  Um yea….anyone know how to grow a money tree? because I’m goign to need to grow a whole forest to afford that!

Enter the 529 plan.  Now, I’m still learning but here’s what I’ve found out so far:

1.  There are two types of 529’s – savings plans and prepaid. Prepaids sound like an interesting option because they essentially allow you to lock in a price today and continue to pay towards that.  However,  I’m noticing that not all prepaids allow you to pay for room and board with the funds.  They simply cover tuition.  This makes sense since you’re essentially signing a contract to pay a certain amt for tuition and it’s left to the institution to honor that price when the time comes.  They risk a chance that tuition will have increased more than they’d anticipated and will have to take a loss when your child starts school.  They can make that up with room and board to a large extent.

The savings plans are basically like your 401k plan. There’s a risk that the market won’t do well and the value of your savings fund will decrease or at least not maintain.  If tuition is inflating at 6% a year, you need to make sure you have a savings fun that makes at least that if not more otherwise you’ll essentially be losing money.   The plus to a savings plan is that they funds can be used for tuition, room and board for an approved institution.

2.  Every state has at least one 529 plan but participation in a specific states plan does not mean you have to pick a school in that state.  So you can live in NC, purchase a VA savings plan and go to school in PA. 

3.  There are tax benefits to a 529 plan for most plans.  The earnings grow tax-deferred and distributions are tax-free when used for qualified post-secondary education costs. 

4.  You can enroll directly or go thru a broker.  The plans differ depending on how you enroll.  There are benefits to a broker because they can guide you thru the process and often times have plans available that don’t exist to the general public.

Again, there’s so much to learn about it so I’m going to dive back in and see what I can figure out.  There’s a savings plan out of Nevada that looks great.  It’s connected to Upromise and has options to grandparents or others to make gift deposits into the account.  

Once we select one, I’ll do a follow up post to review the process and how easy/hard it was to establish the account.

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