Tyler and Meghan Nester of Brigham City, Utah are one step ahead of the game. When their baby was just a few months old, they opened a 529 account to start saving for his college education.
They’re investing $250 a month in the account. It sounds like a lot—especially to those of us who are still in procrastinator category—but their financial planner told them that if they continue investing that amount for the next eighteen years, it will only cover about two years of college given the rising costs of education.
They are hoping to boost the account each year by putting in their tax returns and money given to their child as gifts.
The 529 account was attractive to them because it’s flexible, Meghan says.
“You can transfer it from one person’s name to another, so if James got a full scholarship somewhere, we could transfer it to our next child,” Meghan says.
They say they also liked the fact that it offered tax benefits similar to a Roth IRA, but that the fees were lower.
“Putting it in a 529 account where it is invested in stocks was our only hope of outpacing the projected increases in education costs,” she says. “If you plunk it into an account with a three-percent yield, you will never catch up with the costs of education.”
The young couple is also saving for their retirement and making the adjustment to living on one income since Meghan stopped working full-time after their son was born fourteen months ago. It’s a lot to juggle, but they have peace of mind knowing that they are planning for their future and their son’s future—whether that means a state school or a private school.
Spatz urges parents to think realistically—and optimistically—about what kind of higher education they can afford for their children. She says there are many public universities that offer a great education without breaking the bank.
“I don’t think anyone should feel an obligation to bankrupt themselves to send their kids to a private school,” Spatz says. “It’s just not worth it.”
