One of the aspects that makes blogging so cool is that I get to learn things that help me live a better life and make wiser choices. As companies reach out to share information with my readers, I digest what they have to say and sort out what is really relevant to family life. When ScholarShare messaged me wanting to chat about 529 college savings, I was intrigued because I knew nothing about this important topic. My grandparents were incredibly generous and opened 529 college savings accounts for both the boys when they were born, but that’s as far as I’d gotten with the whole college thing. And man, is time flying or what? Some Boy is almost two years old and I’ve had this account just sitting there dormant! Not gonna lie: I didn’t even know how to access it. I get these messages on occasion from the bank: “Did you know that your 529 college savings account hasn’t been funded in XX days?” Why yes, yes I did. Thanks for the guilt trip.
Truth be told, the boys often get money for birthdays and holidays, and I’ve been sticking it in their dresser drawers for…something…down the line. When it came to actual investment, I just felt paralyzed and afraid that I’d make the wrong choice. Afraid that I’d put their money somewhere and never be able to get it back. What if my kids don’t want to go to college? What if we end up needing that money for an emergency? What if, what if?
I did a quick reader poll to see if anyone else had insight on the subject. Turns out, everyone pretty much felt the same way. Too many balls to juggle, too many considerations, too many daunting fees. Too little information. Analysis paralysis. It was kind of reassuring (and at the same time, a little scary) to see that I wasn’t the only one who felt this way. Many people, like myself, were ignoring the issue and crossing their fingers for a scholarship. In fact, 44% of California parents expect scholarships to cover a majority of the children’s college costs! Yikes. I hate to break it to you guys, but there just aren’t that many scholarships out there.
But there is some good news. Saving isn’t nearly as hard as I thought, with the help of a 529 college savings plan. ScholarShare treated me and some of my awesome local bloggy friends to dinner at Searsucker in downtown San Diego to discuss the details (by the way, if you haven’t been to Searsucker, it’s amazing. Pricey, but amazing. Go, eat, live a little).
Here’s what I learned from the experts. The lowdown on 529 college savings:
- Through ScholarShare, 529 money is invested in one of 19 different funds. Parents can select high, medium or low risk as well as guaranteed interest options. Parents typically choose based on the age of their child (for example, most don’t take a lot of risks if their child is already 16 years old and needs their money soon) and accounts can automatically alter risk levels throughout the child’s aging process. These accounts are professionally managed with no commissions and no annual fees, making them one of the lowest-cost 529 college savings options available.
- Why choose a 529 college saving plan instead of a traditional savings account? Most 529 money doesn’t “count against you” as assets when you apply for college loans, whereas savings accounts do. If all that money is in traditional savings, you and your children won’t qualify for a great interest rate or as much money as they could have if the money was in a 529 college savings account.
- Counting on aid? Don’t. A very small percentage of people actually qualify for grants. Nate and I certainly aren’t wealthy by any means, but we’re already outside the financial aid income bracket.
- 529 earnings aren’t taxable unless used for something other than higher education. If you need to withdraw the money early, you’ll simply pay income tax on any interest that the 529 college savings account has accrued, plus an additional 10% early withdrawal penalty on the interest earned. So either way, you’re a lot further ahead than if you’d kept that money stashed in a dresser drawer!
- If the kid gets a scholarship, parents can withdraw all 529 money tax-free (in other words, the government is not going to penalize children who work hard to earn their own way). You can use that money – and all accrued interest – to go on vacation, buy your kid a car, or simply switch the money over to another child’s account.
- Parents still own this account after their children turn 18. It’s up to parents to control it (and to provide receipts to prove it was used for higher education), so there’s no worries about your kids suddenly getting hold of some “trust fund” and blowing it on a lavish European vacation. Not that ANY teenager would ever do that.
- Accounts can be funded with an initial investment as low as $25.
Hopefully that helped demystify the 529 college savings thing for you all. I, for one, feel way more confident in investing for my children’s future now that I understand all the ins and outs of it. For more information, connect with Scholarshare on Twitter or Facebook.
What about you? Are you using a 529 college savings account, or planning for college another way…or crossing your fingers and hoping it all works out?