By Ashley Ann Reich
For those of you who have or plan to have children in the future, the question often comes up about the value of saving ahead of time for college and when is the right time. For many parents, it is a bit of a guessing game if your child will go to college on a full-ride scholarship or perhaps not attend college at all, but the good news is that a 529 can be used for a variety of expenses that still provides value in saving many years in advance. In my career, I have seen many scenarios where families have failed to prepare and are scrambling the year before to figure out a plan to pay for college. It is best to consider how best to plan, even for a portion of your child’s college expenses in the future.
529 Basics
A 529 can be set up when your child is born (in some states, even earlier), which seems strange but also provides an “out of sight, out of mind” approach if you start saving very early on. You just need to ensure you have your child’s name and social security number to get started. If you open the account before birth, the parent will have to later transfer the account to the child once the required information is available or until the child reaches the state-specific age.
Benefits of a 529 Account
It is also worth reviewing the benefits of a 529 before starting to allocate funds to the account. The 529 account has a few benefits that I believe stand out above the rest of college savings accounts, which include no age or income restrictions to contribute and an expanded set of “qualified expenses” to include student loan repayment and private school tuition. Additionally, if you have multiple children, you have an option to transfer to another sibling, which may put your mind at ease when it comes to saving early.
Another standout feature is that anyone can contribute to your child’s 529 account. Parents, grandparents, friends, and godparents can make an annual contribution for a birthday or holiday as a habit to reinforce college savings. This may not be a “popular” gift according to your child, but they will thank you and others for their contributions come college time.
The ‘What If’ Game
There are many scenarios that will be impossible to predict regarding your child’s future, especially for an event that is well over a decade away. For us, we considered all the other options and played the ‘what if’ game before beginning to save. Here are a few considerations to take into account when starting a 529 plan:
- If you are planning to send your children to a private K-12 school, including a religious school, you should consider a spending plan for some of the 529 money while they are attending school in the early years. This will allow for less to spend later in the event your child decides not to go to college or attends on a full-ride scholarship. For us, we set up a short-term and long-term spending account for our 529 with our financial planner, which gave us options to begin spending while our child is in elementary school.
- If your child receives a full academic or athletic scholarship, understand what other expenses qualify for a 529 withdrawal. Some of these expenses include books, supplies, fees, room and board, and other school equipment. Often, scholarships only cover tuition or just tuition and fees, but colleges have many other built-in expenses you will want to consider.
- A 529 can be used for a wide variety of college options – community college, private 2-year, private 4-year, public 2-year, and public 4-year. Additionally, there are opportunities for your child to use this for vocational and technical schools, as well as study abroad programs. If your child aspires to go on to earn a graduate degree, a 529 can cover those expenses as well. The flexibility and wide variety of options will allow you, as the parent, to have conversations with your child about what suits them in terms of a type of college versus your child feeling pressured to attend a certain type of college because your money has limitations. To me, this is one of the most appealing features of a 529.
In conclusion, it is hard to imagine thinking about your child stepping foot on a college campus when they are being held in your arms for the first time. As a parent, I can say that time flies, and the college discussion will happen sooner than you realize. I am a firm believer in preparing for the future and leaving a legacy for your children, and this is one of the many ways to provide a solid foundation for their future. College is one of the biggest and most expensive decisions a family will make in their lifetime and, in our debt-strapped country, planning and saving as much as possible is the key to financial success for you and for your child.
ABOUT THE AUTHOR
Ashley Ann Reich has been with Liberty University since 2007, first working in Student Financial Services and then as Executive Director of Government Affairs before transitioning to her current role as Senior Vice President of University Compliance. During her time at LU, Ashley started the first financial literacy program, reaching thousands of students in budgeting, paying down debt, and planning for the future.
