My babies were born, and college savings plans were the farthest thing from my mind. I wish someone would have told me that it was the best time to save for their education when they were babies because those were the least expensive years of their childhood. It is so easy to get caught up in the everyday messiness of life, and before you know it, the kids are in high school, and you are in full-on panic mode. Today, two of my four children are in college, and our youngest is a senior in high school. It is the most expensive period in our lives. I have three drivers, and I spend an insane amount of money on car insurance and fuel. My kids are going in a million different directions, stretching us thin. One of them won’t stop growing, so I feel like all I do is buy shoes and clothes for her. And they have the appetites of full-grown men! At times I feel as if I am hemorrhaging money. Luckily for us, my girls have 529 plans. Now that we are neck-deep into college, I am so grateful for the saving we did, as it is a huge help. I do wish I had saved a bit more for their education. I would have, had I fully known what was in store for us.
As an advisor, I cannot stress the importance and benefits of saving early for your child’s education. Compounding is considered the “8th wonder of the world.” Because of the beauty of compounding, parents can invest far less early on and achieve the same financial result than if they wait until later... before the larger food bills, more expensive clothes and shoes, team sports, and expensive lessons for their hobbies kick in. The longer you procrastinate your college savings the more you will have to put away each month as they near high school graduation. Not enough savings may cause you to have to cashflow your child’s education out of your income or seek student loans. Something that should be avoided if possible. Parents can become burdened with the high college expenses and underfund their own retirement savings due to the lack of planning and saving early on.
At Ranch Capital, we offer education planning to our clients. Our finance software gives us the ability to estimate education expenses all over the U.S. and break down savings plans. We can show you a systematic investment schedule or estimate a lump sum college saving investment that can compound over time tax-free. College costs continue to increase and it is vital to address them head-on, no matter where you are in your savings journey.
Below are some similarities and differences in 529 plans.
I prefer the flexibility of a traditional 529 savings plan over prepaid plans for several reasons, but both are excellent choices. The traditional 529 plan offers some key benefits that the prepaid plans do not. Below are some of these benefits:
The flexibility to invest in various investment options and state plans.
The flexibility to use the funds for vocational or trade school tuition and fees.
The ability to use funds for off campus housing, computers, software, internet service, and special needs equipment.
The ability to change investments at any time, depending on need.
The ability to transfer funds to immediate family members without penalties (this could be helpful, for example, if one child doesn’t use the total amount and another chooses to attend graduate school and needs extra).
The ability to gift excess funds to heirs for their education.
529 plans are a great estate planning tool, and can be passed down for generations without being taxed as long as the money is used for higher education expenses.
The ability to move funds from a 529 plan to a 529 ABLE account for a child with a disability is an incredible benefit and one I personally take full advantage of.
There is so much more information to share, including annual funding amounts, front-loading a 529 plan, benefits for grandparents, I could go on and on. If you want any more information, don’t hesitate to contact our office, and we can help you start saving for college!