Saving for College

Our little girl is already 6 weeks old and before you know it I will probably be talking about her heading to college. Time is flying and I feel like now is the best time to get the game plan ready for college savings since I have time on my side.

I would have loved to be able to set aside $5,000 in a 529 plan at my daughter's birth for college. If I could have done that I think our college savings plan would be in good shape. However that didn't happen.

The good news is we have already set aside ~$1,000 in 529 plans for her college education thanks to contributions we made before she was even born and at birth. In the grand scheme of things I think that's a really good start, however I know its likely not enough to cover her college education expenses down the road.

I also started an automatic monthly contribution to her 529 plan. I started at $25/month thinking I just wanted to get the regular contributions started. However the more I think about it, right now seems like the best time to make more serious contributions. Her expenses will only go up as she gets older so I doubled our monthly contribution to $50/month. I think that puts us in a manageable position going forward. If our monthly cash flow improves over time we will up the contribution more.

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Comments (12)

Congrats and good for you to start contributing. Every little bit helps. Don't sacrifice your own saving for the baby. I contribute $50 for each of my 2 kids, to 2 529 plans (fidelity and vanguard). The fidelity is linked to fidelity credit card where I get 2% back for it and the vanguard tied to upromise. nice bonuses. My wife contributes to education IRAs ($50 each as well) and has it with T Rowe Price. Total in 7.5 yrs, $25k. Contributing adds up.

Posted by wayne | June 29, 2009 11:18 AM

Just got off the phone with my brother - he is telling me I need to start saving $4k/year to stay on pace to pay for college in full - yikes! How much is everyone else saving?

Posted by 2million | June 29, 2009 8:29 PM

Excellent. I wish we had done this. Instead we waited until our child was 9 to start -- it's much more painful making those 'serious' monthly contributions if you wait that long! Great work with your advance college-savings plan!

Posted by another IBMer | June 30, 2009 8:59 AM

We started with $3k at birth, and are contributing $170/mo. Of course, we started just before the big crash, so we're still just at like 3k (sigh). Our goal is to have a state school + living expenses covered.

I also would be glad to hear others' contribution rates, though!

Posted by T | June 30, 2009 6:39 PM

Havent u thought putting money into something like prepaid college program?

Posted by Inq | July 4, 2009 10:45 PM

We have a one week old baby girl at home with us right now and this is something we have talked about. Both my wife and I payed our own way through college through scholarships, grants, loans, and hard work. We saved money throughout high school from our jobs as well. My parents helped me a little on rent my 5th year (I finished a master's degree in 5 years), and my wife's parents bought her some groceries and some textbooks.

I don't think that parents should pay for all of college. I had friends in school who would skip class or entire days of school and didn't care - it seemed like none of them were actually paying for it and it didn't matter. Being financially invested in myself that early motivated me to work hard for my success.

I agree with T a little in the thought of having state school covered. I went out of state but between academics and music, I had 80% of my tuition covered by scholarships for 4 years.

Posted by Chris | July 7, 2009 11:24 AM

for IBMer --- you can't use 529s for living expenses

529s make a lot of sense especially for those where you can take advantage of state income tax deductions (just as long you earn less than 150k)...

however, you may want to look at cash value life insurance instead and do some comparisons - because if the premiums are roughly the same, then you have a LOT more flexibility with the money... so instead of only being able to use it for tuition, you could always take a loan out against the cash value life or withdraw and spend it on living expenses, laptops etc for the kids

talk to an insurance broker about the options...
you will be surprised

Posted by 529s | July 17, 2009 12:24 PM

2Mil and folks,
Buddy of mine recommended Trowe ESA for FEDERAL tax shelter and we also do state (GA) 529 for STATE tax shelter.
Trowe's max is 2k/year sheltered, and GA's 529 (with investment options) is up to 3k sheltered.
Grandparents are running their own 529 for our 18 month old daughter, so she's doing well.

On average I try to save a min. 5k a year between those two accounts (a Baby IRA!). If I can surpass it, I check and see which acct is fairing better and plop it in.

2010 and 2011 rules stayed the same SO ESA currently also allows us to use for pre-college expenses, if we send her to private school, etc. Extra bonus and flexibility!

Drop me an email if you have any deeper questions.
CKATL

Posted by CKATL | January 16, 2011 8:07 PM

2million,

Just was curious how your 529 plan was going and what amount it is now up to? Do you still add $50/month?

My wife and I just had a baby and trying to plan for college. We are debating a Coverdell or 529 and wondering which is the better choice and trying to determine how much to put in! Thanks and hope the pregnancy is going well.

Posted by Steve | May 29, 2012 8:35 PM

Congrats! I had to go check because I haven't paid too much attention to the 529 accounts since I don't include them in our net worth calculations. We are now contributing $200/mo with the last bump coming once we found out we were expecting #2.

Looks like we have about ~$7,500 across our 529 accounts.

Posted by 2million | May 30, 2012 11:25 AM

So excited for your 2nd baby! I have been reading you since balance transfers to savings was actually fun! HA! Now I have a baby of my own and was wondering if you might be willing to make a post or a comment about why you chose a 529. I read the other day in one of Dave Ramseys books to use a ESA before a 529 but he didnt say why... so I came to see what YOU do. Take that as a big compliment... Dave Ramsey said something so I am running it by YOU, ha! I figured with Baby #2 you might have had something about college savings more recent than this article... so here is hoping :) Thanks for all your posts. You ROCK!

Posted by Lindsay | October 19, 2012 4:56 AM

Lindsay,
Thanks for reading! The ESA & 529 each have there own advantages and to be honest didn't spend too much time figuring out the very best option.....I originally opened the 529 accounts with myself and my wife as beneficiaries before our children were born (one of the advantages of the 529) and have just stuck with them since it was the path of least resistance for us. I don't think you can do wrong with either and might be a good idea to contribute to both if your contributions are going to exceed $2k/yr (the ESA limit). That way you perhaps some additional flexibility from each plans benefits if needed. Now that you have brought it up though I might need to revisit this for ourselves.

Posted by 2million | October 19, 2012 11:44 AM