How Should I Save for College? Plus a 529 Plan Hack

Saving for your children’s’ college education is a conundrum that only gets tougher every year as the cost of attendance outpaces the rate of overall inflation.

There are just so many variables from family to family and child to child that it’s impossible to assign a number to the question.

 Today, we will discuss 529 plans, my thoughts on when it’s an appropriate vehicle, and cover alternative choices for funding college education.

How Should I Save for College? Plus a 529 Plan Hack

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Do you think your child would rather take out loans to pay for college or have a high chance of having to pay for your medical care and living expenses in your elder years?  They’d rather pay for college.

Should I Save for College At All?

If you haven’t done the math to determine that you are investing enough to get to retirement by a comfortable age, then this should be your first priority. Don’t start saving for your child’s college education when you haven’t made a plan to take care of yourself first.

The basic advantage of a 529 plan is that you can contribute post-tax money and – as long as it is used for educational expenses – the money and the interest that has grown from it will not be taxed again. 

Unique Advantages of a 529 Plan When Saving for College

It essentially functions like a Roth IRA, but for educational expenses instead of retirement. One advantage of a 529 plan is that by using one you have specifically “ear-marked” an account for the sole purpose of paying for college.

Instead of naming a different beneficiary for the 529 plan, you could simply take the same amount of money as the earned scholarship out of the 529 plan. 

The 529 Plan Hack – Scholarships

The neat thing about doing this is that there is a rule that, in this specific situation, you are not hit with the 10% penalty plus tax for a non-qualified withdrawals.

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