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When to Start Your Child’s 529 Plan

There’s crazy pressure on parents these days. From 1965 to 2012 the amount of time parents interacted with their children doubled according to a 2016 study by Guilia M. Dottia Sani and Judith Treas. What’s more is so many of the clients we work with have both parents working outside of the home and often both are working full time. In 1965 typically only one parent (usually dad) worked outside the home. As a parent of a 13 year old and 10 year old, it’s hard to imagine that my wife (who like me, works full time away from the home) and I spend more time interacting with our kids than our parents did. (Full disclosure: our parents are awesome and do so much for us now, so I’m not trying to throw them under the bus. These are different times). There is just so much more pressure on parents now than ever before.

It’s scary to think that for families bringing a child into the world today, college will cost more than their house! For generations the most expensive thing Americans purchased was their house. Now it will be college for Gen Xers and Millennials sending their kids to school.

Initially it’s easy to kick the can down the road. I remember thinking “Just let me get to a point where this kid is sleeping through the night before I worry about college!”

Fortunately our college plan funding is on its way to a place where hopefully we can get our children through school without much debt.  Here’s what I share with anyone who will listen on how Julie and I did it:

  • Julie stopped working for the first year of each child’s life, so it is no understatement to say, money was tight!
  • When each of our children were born, I opened a 529 for each of them. There were some gifts they each received from grandparents, relatives, friends, etc.  All of that went right in. I also started saving $25 per month into the plan from our checking account.
  • A few months later, I upped it to $35. Then a few months after that, I upped it to $50.  You get the idea.
  • But I’m a planner and I realized that even if I saved $100 per month, it wouldn’t be near enough to cover the cost of my beloved alma mater, Susquehanna University, even using a conservative inflation factor. Ugh!
  • But then Julie decided staying at home wasn’t for her (or for us) and off to daycare we went. Our increase in income went almost completely to daycare! We were paying $700 per month per kid by the time Sam turned 1 and Julie went back to work!  Our monthly 529 savings was still less than $100.
  • Light at the end of the tunnel: kindergarten. Addy started kindergarten and we immediately saved over $500 per month in daycare costs. I immediately started saving $500 per month in her 529. A few years later Sam made it to kindergarten and I did the same for him too.

Today we’re right on track. Until March of this year, we had the benefit of a strong bull market that is as old as my son Sam.  So it took a little pressure off. And it’s likely the economy, currently in dive mode with the COVID-19 outbreak, will recover and take another dive between now and the time they are ready for college. So it’s important to systematically reduce risk in their 529s. The plan we chose automatically does that every few years too.

After each child started kindergarten, we got their college savings on track. And we ultimately saved money every month, because we weren’t allocating quite as much to “savings” as daycare had cost. The trick is not allocating all of the daycare money to something else once kindergarten comes.  Honestly many families have to play / pay for the morning-care and after-care programs because their work days don’t quite line up with the school day, but thinking ahead isn’t too bad.

Next time I’ll share some thoughts for families that may be too late to the game now.