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College Countdown
Start Saving for College When Your Child is Born
By Deborah Ng
Ten or 20 years ago, a new parent might joke about paying for a child's college education, but it wasn't an immediate concern. Back then, most parents would worry about college when the time came and take out a loan if necessary. Nowadays, the ink on the birth announcement is scarcely dry before the proud mom and dad are opening a college savings account. What's the rush? Don't we have at least 18 years to save? Do we really need to start so early?
"Absolutely!" says Carlos Duran, an independent agent for State Farm Insurance in Hightstown, N.J., and the father of three young children. "With college costs the way they are, parents have no choice but to start saving early, especially if they won't qualify for financial aid."
According to Duran, in 18 years a parent can expect to pay an average of $30,000 per year per child for college education, more if the child will be attending an Ivy League school. Rather than create a financial burden for themselves years from now, more and more parents are choosing to open a college savings plan.
"If parents open a plan such as a 529, it will be less of a sacrifice 13 or 15 years from now, and they won't have to take out a loan or refinance the house to pay for a college education," says Duran.
"The 529 plan is the newest way to save for post high school educations," says Nancy Jassak, a financial services specialist for Independent Capital Management, Inc., in Camarillo, Calif. "It includes any accredited college in the U.S." If used specifically for college and its subsequent expenses, the 529 grows federally tax deferred and comes out tax-free (see note below). If your child decides college isn't for him, the account can be rolled over and used to fund another student's education. There's no age limit either. The money can be used for a much older student if one is so inclined.
One of the reasons Duran prefers a 529 savings plan is because anyone can contribute. His recommendation to grandparents, aunts and uncles is to take any money they might otherwise use to buy gifts and savings bonds for special occasions, such as christenings and graduations, and contribute to a 529 plan instead.