How to get started with a 529 Plan + a College Savings Calculator

Published on April 8, 2016 By Lauren

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  • We all want the best for our kids, right? And we want them to not only have the opportunities that we’ve been given, we want them to have EVEN MORE. Could there be a better example of this than setting up a fund to help pay for their college? Maybe you just had your first child, maybe you hardly feel like an adult yourself (I have 4 kids, but I still don’t really feel like an adult), but being an adult is really all about thinking about the future, right? Here’s an alternate viewpoint on saving for college that might give you that motivation to get your butt in gear and start “adulting” when it comes to saving for your kid’s college fund.

    And yes, it involves 529 accounts, but these are way more straightforward than you might think. More on that later.

    Have you talked to any recent college graduates lately? It’s a very different world for them. They’re heading into their 20’s and 30’s with a huge disadvantage – their school loans. Don’t believe me? Then you gotta look at some of these stats:

    • Average student loan debt in 2003 (when I graduated): $18,271
    • Average student loan debt in 2015: $35,051
    • Source

    The financial burden on students has doubled over the past 12 years, and starting salaries for recent college graduates remains stagnant. This has a profoundly negative effect on this generation. Big life milestones like getting married, buying a house, and starting a family are being put off for several years.

    As parents, we want to see our children succeed. Speaking for myself, I don’t want to see my children burdened by debt at such an early age. I want to see them own their own homes and get married. While it’s hard for me to envision grandchildren (since I still have a 2 year old), I know that I want to have grandchildren someday and I’d rather see my kids start to have these milestones in their 20’s, not their 30’s.

    Having grandkids when I’m 50, not 60 is my motivation to start a 529 plan for my kids. I know that part of this motivation is truly selfish, but I’d love to live long enough to maybe even see some great grandkids. When you invest in your children’s education, you might also get the added bonus of investing in your own legacy.

    So let’s get started! And there’s good news here – it’s VERY EASY. The 529 plan is the way to go. So what is so awesome about a 529 plan? Tax savings.

    When you contribute money, you don’t get a federal tax deduction in the current year. However, the funds can grow tax free so that when they are withdrawn, you don’t have to pay any income tax.

    But what plan should you choose? How do you sign up? And how much should you contribute?

    I’ll try to answer these below:

    1. Pick a state. Yes, it’s that easy. But a couple quick points on this topic:
      • It doesn’t have to be the state you live in. You can literally pick any state. Some states may have lower investment fees than others so be sure to do some research and pick accordingly.
      • Just because you are choosing a 529 plan in a particular state doesn’t mean that your college choices are locked into that state. The funds can generally be used at any accredited college or university, unless…
    2. Your next option will be choosing the type of plan. This is where you could potentially lock yourself into a particular college. You can choose either of the following:
      • Prepaid Tuition – you are basically paying tuition upfront for an in-state school and locking in current tuition rates. If your kids are young and you have 10+ years before they will go to college, this option probably doesn’t make sense. However, if your kid is just a few years away from college and is 100% decided on a particular school, this option might make sense.
      • Investment Programs – your college savings will be invested in mutual funds similar to a retirement plan. The funds can then be used at just about any school of your choosing.
    3. Do some math – how much do you want to have for each child when they graduate high school?
      • I’ve got some help for you here! Download my calculator, and this will help you figure out just how much you have to contribute towards the account monthly.

    • Keep in mind, these are only estimates, and you will have to have a version of excel that allows macros in order for the calculator to work.

    Now I bet you have some other questions… like:

    • What if my child ends up not going to college?
    • Can I transfer funds between children?
    • What if I need to withdraw the money early?
    • What are qualified expenses for 529 funds?

    Allstate has a couple of GREAT blog posts that answer these questions. This post answers the above questions, and this post addresses 5 common myths.

    Personally, I want my kids to have the best and a 529 plan can be a great tool to give your kids a leg up financially – which will allow your children to reach those milestones earlier in life.

    This post was written as part of the Allstate Influencer Program and sponsored by Allstate. All opinions are mine. As the nation’s largest publicly held personal lines insurer, Allstate is dedicated not only to protecting what matters most–but to help protect your firsts and the moments in between. Share your firsts with #HeresToFirsts


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