By Patricia Roberts, Chief Operating Officer at Gift of College, Inc.,
One of the most substantial financial challenges that parents will face is preparing for their children’s higher education expenses and for that reason, opening a 529 college savings account before a child arrives or soon thereafter is something parents or grandparents may look back on with appreciation for years to come. Since the beneficiary on a 529 account can be changed at any time to a member of the family of the original beneficiary without tax consequences, a parent or other relative can open an account, name themselves as both account owner and beneficiary and then, change the beneficiary once the child arrives and has a social security number.
There are many reasons to start saving early. Here are five of the primary ones:
1. The power of compounding
The earlier parents or others can open a college savings account for a child’s future, the more time there will be for contributions to compound and grow.
2. Valuable tax benefits
Unlike taxable investments, earnings on 529 accounts are not taxed as they grow in value and are never taxed when withdrawn to pay for a wide range of higher education expenses (well beyond traditional college). Also, 35 states and the District of Columbia offer an annual tax deduction or credit for contributions to 529 college savings plan accounts.
3. Easy to get started
It takes very little time and money to begin saving for post-secondary education. Many 529 accounts can be opened with $25 (or even less) and often in under 15 minutes. Investors can open a 529 account directly with a state 529 plan or can open an account with the support of a financial professional if they have one. While initial minimum contributions are low, investors can accumulate over $400,000 per beneficiary in many plans.
4. Friends and family can begin to contribute
As soon as a 529 college savings account is opened, parents can begin inviting others to contribute for upcoming celebrations rather than giving gifts that are quickly outgrown in size or usefulness. Most 529 plans have easy-to-use gifting tools that enable invitations to be sent by account owners to those who may be interested in contributing. Creating a circle of support for a child’s education is a great tradition to begin. After all, between birth and college, friends and family will have 18 birthdays and at least 18 holidays (if you count only one per year) when they will likely want to give a gift to the child — and these amounts can add up over time.
5. Peace of Mind
New parents understandably have a lot else on their minds and on their plates, establishing a 529 account early in their child’s life for future education can create peace of mind about what may likely be one of their most significant investments as a family. Any amount saved will be that much less that a child will need to borrow and repay with interest.
By way of background, as a financial services professional and expert in preparing for post-secondary educational expenses, I have helped tens of thousands of parents avoid millions of dollars in student loan debt over the past 24 years. I have also helped a growing number of employers offer 529 benefits and tax-free student loan assistance to alleviate the stress that employees often feel with respect to higher education costs.
I am Chief Operating Officer at Gift of College, Inc., author of Route 529: A Parents Guide to Saving for College and Career Training with 529 Plans, and the proud mom of a son who graduated debt-free from college in June 2021 as a result of my beginning to save when he was an infant. I’m on a mission to educate others about the value of planning ahead. My expertise has been featured in various publications including