D.C. Area Babies
Amy&Steve0421
member
How are you saving for college? Why did you pick that plan?
Amy&Steve0421
member
We are having the college savings plan discussion (yes - I'm a planner) and think we know which path we are going to pursue - but I would like to hear input from others.
How are you saving for college? And why did you pick that plan?
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Re: How are you saving for college? Why did you pick that plan?
DH has been a big proponent of this for a long time. We started one under his name until DD#1 was born and then made her the beneficiary. We have already set up one for DD#2 as well. Originally we just looked for the cheapest (re: fees) one, not worrying about which state it was in. At the time, the Vanguard one based in Nevada was the best bet. We did it through Upromise and had a Upromise credit card that was linked to the 529, so in addition to the regular contributions we made monthly, we were also able to put in money accumulated through purchases (they usually reward anywhere from 1-10% back for every dollar spent up to a certain amount per year).
Now that we bought a place in VA, we decided to roll everything into the VA529 VEST program since that will be beneficial on our state taxes--you get a small deduction if you file taxes in the place where your 529 is based. But aside from that, it really doesn't matter what state your 529 is based in, as long as it is a plan that allows you to use the money for any college in any state, which most do. Just like with a 401k, there are different investment options--from super aggressive to less risky, as well as plans that automatically adjust from more to less risky over time (which is what we went with).
I am not a big fan of the "pre-paid" college savings programs, because those have many more restrictions--the most benefit will come if you kid goes to a public college in the state where the plan is based--if you use the money to go elsewhere I believe it will only cover tuition and not any other education-related expense (room and board, books, fees, etc.), which a general 529 will cover. And who can guarantee that 18 years down the road that is going to be a good or even available option?
We're not contributing a huge amount and we have no illusions that this savings plan is going to totally cover the girls' educations, but it's nice to know that we have at least a little bit put away.
HTH!
If I remember correctly, there are penalties for withdrawing the money for a non-education expense. But you can change the beneficiary to yourselves or another relative if your kid doesn't go to college, so at least someone can get the educational benefit.
I think with the VA 529 there is a 10% penalty for pulling out the money for non-educational expenses. However, you can switch the beneficiary at anytime and since my husband is banking on DD getting a full-ride to college he is planning on going to professional golf school with the money :-) Also, he claims he will 'let' me use some of the money for cooking school in Italy.
I liked it well enough...but there were a few downsides that led to our change:
1. There is a max benefit of ~$300 a year from the credit card rewards program, something we maxed out on well before Dec since we used the one card for just about everything. We now have a discover card and we transfer the cash rewards from there to our 529--no max to worry about.
2, Upromise doesn't have a plan for every state, VA being an example.
Upsides:
1. you can get relatives to link their reward cards to the account.
2. once you things linked, you are saving almost without thinking about it.
We opened up a 529 that automatically moves from more aggressive to less aggressive investments depending on the child's age. We just did it through our bank, so I'm not sure what state it is through (I think NJ). WA State doesn't have income tax, so there weren't any tax incentives to go with one plan over another and we wanted maximum flexibility. We'll be opening up the second one as soon as we get the SS for #2.
We talked about this this weekend, but we are going with a Roth IRA.
We were told by a financial advisor recently (our Woodmen rep) that with the 529, there is a penalty if it's not used for education...it can be rolled over for anyone in the family for education but we'd rather be saving money for each child to use it what is right for them.
Also, the Roth is pre-taxed and no penalties.