College Savings

I was recently filling out the FAFSA (Free Application for Federal Student Aid) form for my high school senior daughter Anna, and it occurred to me that I should make a post about college planning that might help others navigate this daunting parental challenge. I remember one of the greatest joys in my life was when Jodi told me that she was pregnant. It was pure happiness and joy. After that initial excitement wore off a bit, one of the things that occurred to me was that now I had to figure out a way to give this unborn child the best possible chance at future life happiness. One of the ways to do this was to make sure that he/she would graduate from college debt free. As I began researching, the staggering cost estimates that would appear on websites and financial planning mailings were intimidating. Jodi and I decided immediately to start a 529 College Savings Plan with our financial advisor. We didn’t know yet if Anna was going to be a boy or girl and we had to put a name on the account. We chose Ryan and were able to change it to Anna once she was born and proved to us that she was female. I will fast forward 18 years to now and am happy to say that paying for her college is not a concern for us. As I look back, the sacrifices we made to be able to get to this point was totally worth it. What a blessing this will be to her future and the future of our other children to never have to worry about using their incomes to pay for college loans or the astronomical amount of interest involved in that. If we could do it on two teacher salaries, anyone can do it. Our strategy was pretty simple, and looking back on it, I would only change one thing. I’ll share that at the end of this post. We decided on $100 a month for each kid’s 529 Plan ($400 per month for all 4 kids) and then when we got our tax refund each year, we would put another $1,200 (for another $100 per month) in each kid’s 529 Plan. That allowed us the flexibility to use the $1,200 extra amount for emergencies if something came up. I know the market is doing really well as of the typing of this post, but I am pleased to report that this strategy has worked for us if our kids choose a college that will cost between $25k-$30k. There have been years in the stock market that were worrisome and years that were amazing. What that has showed me is that if you ride the wave, stay consistent with your contributions, the miracle of compound interest over 18 years can get the job done. Another thing that was huge is that the money always came directly out of our checking account, so we never really saw the money and got used to living without that $400 per month. Something that I learned that may help others is that the state plan you choose is HUGE. For example, Anna is in the Wisconsin plan of funds and had a 2 year head start over Jack’s plan, but Jack has significantly more money in his 529 Plan because my financial advisor recommended and put him in the Virginia state plan because he thought the fund would perform way better over time than both the Ohio and Wisconsin plans. I questioned him about the tax break we would get if we chose the Ohio plan but he reassured me that the Virginia Plan funds would far outperform the Ohio plan and any tax benefits we might get. I am so happy we trusted his expert advice. The only thing I would change would be that I would max out my Roth IRA contributions before putting the extra $ into the 529 Plans. The reason for that is that you can use your Roth IRA money to pay for college expenses and it affords you a little more flexibility than a 529 plan does. Obviously it would be best to utilize both. So if you are reading this and you are thinking about having kids, have kids, or even grandchildren you hopefully learned what is possible if you are consistent and deliberate with your investing. Don’t be intimidated by the numbers, just start right away, you won’t regret it.