National 529 Day
I have to admit, until my partner Sarah Yakel forwarded me an article on the topic, I had no idea that tomorrow (5/29!) is officially National 529 day. I suspect at this point, pretty much every date on the calendar represents ‘National Something Day,’ but it does give me some good fodder for a blog post! 😊 Before I go any further and as we have said in previous posts on the topic, you should be sure your own retirement plan is on track before worrying about pre-paying for college. There are smart ways to borrow for college expenses, but there are really no ways to borrow for retirement income!
I do think there is a lot of confusion around how to pay for college in general, and certainly 529 plans are a very popular option. If you aren’t already aware, 529 Savings Plans are essentially like the ROTH IRAs of college savings. You put money into a plan (without receiving much of a tax deduction), select appropriate investment options, and the money grows tax free until it’s used for qualified education expenses. Rather than completely recreating the wheel, here’s a great article from Fidelity on the subject: https://www.fidelity.com/learning-center/personal-finance/college-planning/college-529-spending (note: this article is from 2018 and some of the numbers have been updated for 2019).
In Virginia (FYI – you can use any state’s plan regardless of your state of residence), you have three options: 1) inVEST – Investment Portfolios run by the state of Virginia – 2) CollegeAmerica – investment options through American Funds with the help of an advisor – 3) The VPEP – Virginia Prepaid Education Plan (recently closed to new savers). Once again, there’s a great website: https://www.virginia529.com/new-savers/basics/
Many parents and students take advantage of federal financial aid, but the process and formulas can be a bit confusing. JP Morgan put together three great slides that give a breakdown of the process and how financial aid need is determined.
Personally, my wife and I still have about 10 years until the first of our children reaches college age. But, it is never a bad idea to start saving and planning early. I would say that it is uncommon for parents to fully fund 4 years of college ahead of time, but certainly every bit helps. One idea I pass along to clients with young children is to advertise the fact that you’ve opened a college savings plan to your relatives. Rather than buying the kids yet another stuffed animal or toy or outfit, they could contribute to the college savings plan on birthdays and/or holidays.
So, Happy National 529 Day to you and your families! I don’t think Hallmark has made a card for the occasion just yet, but who knows?