Friday, June 13, 2008

We have a cunning plan

I finally set up official 529 plans for the kids and transferred their college savings into them. Well. Most of their college savings, anyway. They have a couple accounts that are returning kick-butt interest right now (credit union is giving them 8% for a year, for example), but still.

It was time, and past time, to get this stuff into an official tax-advantaged savings account with their names literally on them.

And as I was going through the process I thought, “Hey. This is something you ought to take a minute to talk about on your blog!”

I know there is a lot of debate out there about whether or not it is “necessary” to provide college money for your kids. I considered it part of the deal when I had the Denizens, because personally I feel that a college education has tremendous value – not merely in the form of that infamous (and not always transpiring) leg-up into the World of the Salaried, but also in terms of personal growth. Your basic college education includes a lot of “useless” classes in things like philosophy, logic, creative writing, literature and so on.

I know that I would be a much less interesting person if I hadn’t been exposed to all those groovy, annoying, pointless, tell-me-again-what-this-has-to-do-with-getting-a-degree courses.

And yeah. I do kind of hope that it will give my Denizens the same thing it has given me: That slight edge in the workforce. I know for a fact that there have been times when my resume was in a pile of twenty or more, and it only drifted to the top because I was one of the very few with an actual, verifiable degree behind it.

The 529 plan allows your college money to grow free of federal and, in most states, state income taxes. You do not, in most states, get any kind of tax advantage for the money you put into the account (unlike, say, an IRA or 401k). You can put in up to $310,000 per student (oh, I wish!!). You can start with as little as $25 down.

It does not matter how much or little you earn. This is not just for the rich, or just for the middle class, or just for the poor. It is for anybody who wants to use it. Every little bit helps, so don’t let the fact that you aren’t sure you can manage more then $25 a month stop you. Even if it doesn’t pay for the Whole Experience, you’ve done more than you otherwise would and it just might make the difference between Not Going, and Going.

And never forget the magic of compounding. The money you put in today will grow, and the interest it earns will in turn earn more interest, and so on, and so on, and so on.

If the money is withdrawn for ‘qualified expenses’ (books, tuition, fees, supplies and equipment – even housing expenses if the student is going to school more than half time), the income earned on the money is never taxed.

If one of the Denizens doesn’t end up going to college, I can either give their money to another Denizen, or roll it over for one of my nieces or nephews, or even just let it ride for my grandkids. I retain complete control over the funds – I can even decide that eh! What have these rotten kids done for me lately?!, withdraw the funds, pay the tax penalties on the income I’ve earned and go to Maui on the cash.

I haven’t actually set up these accounts before for a variety of reasons, ranging from ‘lazy’ to ‘I can do better on my own’…which I can, up to a point. Frankly, my returns in the stock market kick butt over the average returns of these mutual funds, and with fewer fees and loads.

But I pay taxes on the income I earn by doing the investing myself. So, take the total earnings for the year, lop 33% off the top of that for state and federal taxes and there you go – that’s what the kids earned on their college money.

So now that they’re set up and a hefty portion of my monthly budget is being siphoned into them, I have one last tip to share: There is a website called UPromise. It’s like a MyPoints or other loyalty-reward program, but these funds go to college savings for your kid(s). Use your reward card at Safeway, earn money back for college. Buy your gas at Exxon, get money back for college. Buy your Oriental Trading goodies via the UPromise site…7% back for college.

You get the idea.

You don’t have to be the parent to use UPromise, by the way. Grandparents, friends, neighbors, uncles and aunties – you can link your grocery cards and such and be earning cash back for your favorite Little Ones as well.

And with that…my tax deductions are demanding dinner. And snacks. And ice cream. And…


Janice said...

Thank you for writing about this in lay man or 'woman's' terms.. very interesting. Something I will share with my kids for my grandkids.

Anonymous said...

Amen! Saving now makes a huge difference; I even have asked family who would otherwise buy me kind but useless gifts to contribute to the kids' funds. Easier and they feel happier giving a little extra something for a good cause. Although I must say, Maui is Really Nice. Just sayin...

Ms. Packrat said...

One of the most wonderful things (of many) that my parents did for me was the fact that I graduated without a penny of college debt. A very second-hand car, but no debt at all. Since my father was a retired Army officers just getting going on a second career and my mother was a librarian, it must not have been easy getting two daughters educated debt free, but they did it - while people we knew with far more resources let their kids graduate tens of thousands in debt. I know they were saving money for college for us when we were still in diapers, so I am grateful to them. I have (small) 529s started for my niece and nephew - I know their parents are saving for them, but there's nothing that says Auntie can't fund a semester in Italy or Denmark or something wonderful ...

Anonymous said...

This is great. Lots of good ideas and info, especially for those of us (like me) who are Seriously Money-Management Challenged. Thanks.

Jeannie said...

I could have written this blog -- especially the part about not being the same person had I not attended college - yeah for you and really a BIG Yeah for your kids!

Jeff Frese said...

I started a company that lets anybody in your circle of friends and family gift directly into your child's 529 plan. So instead of another Barbie Doll or shirt from the Gap people can gift into your child's plan. It's a simple site and concept that helps people save for college and give meaningful gifts. The site is

I also write a blog on saving for college the site is

Anonymous said...

Inquiring minds want to know: did you set them up through Upromise or your credit union or somewhere else you recommend? I really need to do that soonish.

Anonymous said...

Having just graduated debt-free from college, I want to say, I totally agree about the value of planning. I paid for college with a combination of a mutual fund my parents graciously set up and contributed to, work, work, work, and taking two years of community college classes while in high school.
I'd also like to plug that last option: AP classes or college classes for high school credit are both incredible opportunities, financially and intellectually, if they're available in your school or state.