College Saving Funds

Updated on December 13, 2010
M.T. asks from Saint Paul, MN
7 answers

Hi, not that just saving for retirement is hard enough, I realize that we need to start saving for my son's college (he's 14 months now). How do you save for your children's education, and how much? Is 529 the best way, and what are the best funds? I'm very new to this, so your suggestions are greatly appreciated. Thank you!

I'm a bit confused about 529 because states seem to offer one as well as mutual funds companies like Vanguard. Is it better to go directly to the states? Also, where would you find an "advisor"? Do you mean financial planners that you would have to pay for, or like people at mutual fund companies or other places that offer 529 funds? Thanks again!

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answers from Seattle on

Since you asked how we save and how much...

We currently don't. My husband just graduated 2 years ago (and hasn't done his master's program he wants to do), and I still have several years of college left to do.

We're on the "pay for college perpetually" plan. By the time both I and my husband finish school our 8yo will be just about starting school. On the upside... the pricetag won't be a shock. Also, ideally, kiddo will be able to dual enroll when he's in highschool. (Dual enrollment programs are free in most states that offer them, you "just" have to pay for books... which currently run us about $500-$1000 per quarter). In our state the dual enrollment program is called "Running Start". The homeschool students who use Running Start either have their AA/AS completed by the time they're 18 and age out (and have to start paying), or they use them as their highschool transcripts into an Ivy League school. A large part of the reason that we homeschool is to be able to give him a good shot for college. We can't save money for school... but we can durn well up his chances of getting in, and the way that homeschool works, it means his schedule will allow him to go to college full time as a highschool aged student. Which means 2 years of school is "taken care of".

By the time kiddo is in school, either we'll be making a LOT more money than we currently do (from me working), or he'll have two kick butt advisors on scholarships/ grants/ loans. Since the scholarship route starts off in the 9th grade (aka scholarships which are only for freshmen, sophmores, Jrs, Srs,) we'll be starting down that path in just a few years.

But we currently just CAN'T afford to pay for school for us, and to be saving for school for him. There just isn't extra money for it. So the money is going to have to come from sweat, planning, and out of the box thinking. Hardwork and luck is the best that we can offer.

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answers from Minneapolis on

You don't need to pay a financial planner to learn about a 529 plan. It is set up like an IRA, so you can talk to your personal banker. I work in banking and we have certain personal bankers that are trained specifically for IRAs, including 529 plans. They are considered educational IRAs.

Also, a ROTH IRA is simply an IRA that you pay taxes on up front. Meaning, you don't get to lower your taxable income by the amount you contribute to a ROTH IRA. You can withdraw your contribution amount at any time without penalty, BUT you cannot withdraw the interest you earn on a ROTH until age 59 1/2 without paying a penalty. Once you reach age 59 1/2, all the money can be withdrawn tax free.

I personally wouldn't put all your eggs into one basket as they say. See your banker about a 529 plan to learn more and see if it's right for you.

I can say from experience (I produce all the year end tax statements for our customers, including 529 plans) that we have less than a handful of customers with 529 plans. They don't seem to be very popular.

If you want to go with it though, consider other things as well, such as certificates of deposit, a ROTH and government savings bonds. There are actually many options besides the 529.

1 mom found this helpful


answers from Pittsburgh on

529 is the way to go. Talk to a financial planner about the options out there. You can use any state's plan...whatever is doing best.

AND there comes a point where funding the retirement takes precedence over the college fund.

1 mom found this helpful


answers from Rochester on

I just spoke to a financial advisor about this. He strongly recommended not using a 529. The reason he doesn't suggest it is because it can only be used for education and nothing else. If for some reason your child doesn't go to college that money has to be used by someone else for educational costs. You cannot use it for any other reason. One example he gave was a family whose only son was killed in a car accident his senior year. Neither of them wanted to go back to school and they ended up using the money to help a niece go to college. You also have to be careful about some of the state plans. Some of those plans require you to use the money in that state. If your child gets into Yale but your state plan requires the money be used in your state your stuck.

My financial advisor suggested using a Roth IRA. The money is untaxed until it is withdrawn and it can be used for things other than education if you don't need it for that. Talk to a financial advisor or planner. There should be someone at the place that handles your retirement.

1 mom found this helpful


answers from St. Louis on

I had this same question for my mom a few weeks ago (as I am about to have my own little one to start saving for). She didn't really have advice on how much to save each month, but she did encourage me to look into a 529 plan. She said that she liked this when she was having to save for me because she was never taxed on the money when it was withdrawn from the account as long as it was for educational expenses. I looked into the Sallie Mae 529 accounts, but am thinking about finding an advisor to talk to. I'll be re-checking your post though to see if you get any other advice that I can use!

1 mom found this helpful


answers from Dallas on

First of all, this is a great site to get opinions, etc but please do NOT take financial, medical and legal advice as the "way to go" . Most of us on here do not have degrees in these professions and are not qualified to give advice on specific products, etc. Each family if different as far as their specific needs.

What we can do is offer what we have done for our families which helps you gather information so you can make the best decision for your family.

We started saving the day daughter was born in 1994. At this time she is in 10th grade and is fully funded for college unless something bad happens. We anticipate $40,000-$70,000 per year depending on where she goes. If she gets a scholarship, that would be great, and it is likely that she will have some sort of scholarship. She also wants to study in Italy and we have planned for that as well. College is not an option in our family. It is the way we were raised. We are both well educated from good schools. Our daughter has always wanted to follow in our footsteps, especially her dad's to go to Duke. She will also help with some expenses.

If you don't have a feel for the market, planning, etc, then it is best to go to a professional and learn about the different options. There are many options you can do yourself IF You have the right info. You don't want to think you have a great plan and then find out differently with fine print.

Another thing to make sure you do is to have yourself fully funded for retirement.

We have done this with a lot of sacrifice and hard work. It takes a lot of planning and delayed gratification. You can do it and remain debt free.

EDIT: We personally feel it is our parental obligation to provide for our child and get her out of college debt free so she will be able to start her life on her own debt free. She will not be burdened by caring for us either because we have also funded our retirement which is another priority and parental obligation



answers from Minneapolis on

My husband and I both graduated college with a fair amount of debt and are working to pay that off, as well as pay our mortgage, car payment, and save for retirement. We just had our third. We love our children dearly, but they are going to have to pay for their education. We will help out as much as we can, but frankly, our retirement is our priority. We do not want to be a burden to our children, so we are placing that as our priority.

Something you may also want to ask is if the savings accounts will actually negate some of the scholarships that your children could be eligible for. When colleges and universities look at the financial picture of the family, they estimate what the family should be able to pay. Any savings accounts, especially educational savings accounts, need to be exhausted before they would be eligible for financial aid based on need. Just an FYI.

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