It’s official: our baby girl is 10 months old. A few nights ago Johnny and I found ourselves talking about her college plans — or rather, our plans for her college. Very funny joke! Nope, this is for real. Lest you think we’re jumping the gun, just remember school loans are the reason Johnny and I were in $20,000 of debt just a few years ago. And we’d like to help our little cupcake (or cupcakes… someday) start post-college life not in the red. Since I don’t anticipate coming into an inheritance right as our child starts college (or ever), we best start saving now.
We’ve thrown around the idea of a 529 college savings plan, but it wasn’t until recently that we really hashed it out and made the decision to move forward with putting money in one. There are pros and cons to a 529 plan, and some of those depend on the state in which you reside. So here are some general 529 facts we took into consideration as we made our decision of whether to invest:
- Our contributions will be tax free!
- We’ll get state income tax credit.
- Even though we’ll save in one state, the money can be used for colleges and universities everywhere in the US.
- Our money will grow! The money in a 529 plan is invested, similar to a mutual fund
- If we start now, the amount we take out each month won’t be a huge burden, unlike the heart-attack-inducing amount we would need at the ready otherwise.
- We won’t get federal income tax credit. Booooo.
- The amount we save has to go toward college expenses. These include tuition, supplies, and room and board. BUT (this is a big but), you can transfer the money to another beneficiary (aka, your other children) if, say, little Tommy starts his own company in high school and doesn’t need college (because that’s usually the reason they don’t go, right?).
- Any money that doesn’t go toward college expenses is subject to income tax and a 10% penalty. Not cool. Not cool at all. So with a 529, it’s important that we save enough but not too much.
Despite the cons, we are pretty stoked to start putting money toward our girl’s college. Merry Christmas, hunny! Just kidding, we’re not those parents — although this year she wouldn’t notice if we were. We’re working on her noticing her own fingers right now. All of that said, because saving the right amount is pretty important with a 529, we came up with a plan for calculating how much to save each month for the next 17 years. I’ll be sharing that very soon!
What about our fellow parents out there? Do you plan to help pay for your kids’ college? What’s the plan?