Last January my husband and I welcomed our second daughter into the world. Shortly afterwards we opened up a New York State 529 Savings Plan for each girl, and made our first contributions (money they received over the Chinese New Year). Since then, the accounts have sat largely idle.
We’ve certainly talked about contributing more, and on a regular basis. We know the value of early saving. We know the importance of coming up with a system. Still, we have yet to take serious action.
In speaking with friends who have children of similar ages, I realized we aren’t alone. Alternately relieving and distressing. We clearly all have some work to do.
As parents, it’s easy to obsess over how much we should be saving for our children’s future. It’s far more difficult to actually take that first step.
September is College Savings Month; the perfect time to make some headway in planning for our children’s future. To get us started, I decided to round up some advice from an expert in the field.
Saving for College? Start Small
Andrea Feirstein is a consultant with AKF Consulting, “the leading expert and strategic advisor to State administrators of 529 plans”. Her most important advice: don’t be discouraged.
“It is never too late, and it’s never too early,” she says. “If you have a child in private college today, you can expect to pay over $200,000 over four years. Public institutions cost less, but still close to $100-120K. You can start to tackle this expense in a systematic and simple fashion.”
For younger couples, such as my husband and I, Feirstein suggests starting small.
“Think about where you can save 10, 15 dollars a week,” she advises. “Work with your company to take 20 out of every paycheck and put it aside. If you start to take those small steps, your dollars should grow over time, it’s no different than saving for retirement.”
Feirstein confirms that despite my fears we’ve actually made a few good decisions; one being that the most efficient way to save is still a 529 Plan. “The value can’t be beaten in terms of the federal tax advantages you can receive from your savings. One of the big tax advantages is that while you keep money in your 529 account, it grows tax-deferred. And, as long as the dollars are used for qualified higher education expenses, the earnings are completely tax free when you use them. If you were to save with a traditional savings account or even in your own name rather than your child’s, you would have the same advantages of tax-deferral and possible tax-free withdrawals. There is another similarly tax-advantaged product, a Coverdell Education Savings Account, but there are income and contribution limits on those accounts. Also, 35 states offer state tax benefits for contributions to 529 accounts but Coverdell Accounts do not.”
After speaking with Feirstein this journey seems so much more manageable. The numbers are daunting, but she assures me that we can achieve them if we take this dollar-by-dollar. And, even it we didn’t manage to save the full cost, it’s encouraging to remind ourselves that “every dollar you save is one less dollar of debt that you or your child will have to incur.”