College Savings Funds and 529 Plans

Parent Q&A

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  • Late start in saving for college

    (7 replies)

    We are finally in a position to think about saving for college, but our kids are 11 and 8, so we only have about ~10 years to work with. We are trying to decide between a regular savings account and a 529. (Are there other options?) I keep reading that a 529 is good if you are starting it when the kids are babies so I'm wondering if we missed the boat. I know this is probably more a question for a financial planner, but we would welcome hearing advice from the community!

    I manage our family’s finances and have done a lot of reading. A 529 has benefits no matter when you start it. The growth is tax-free over those 10 years, whereas regular savings or brokerage accounts are not. There is also favorable treatment of 529 plans for financial aid purposes ( Even if you are relatively high income, it could be relevant if one of your kids is looking at private colleges that meet all financial need- your family may still have need in that case given the high tuition. Other benefits: They could hold onto the money for grad school if by some magic it’s not needed for undergrad. The plans also will provide forms or links that make it easy for other people like extended family to make gifts to the plan if you think that’s relevant (or might be for milestones like a bat/bar mitzvah, middle school graduation, sweet 16, etc). Remember it will actually be 5-6 years before the end of college even from age 16. 

    As a side note, there are no state income tax benefits in California but that means you can choose any state’s plan. We ended up in the CA plan because it offers a socially conscious stock fund (but not part of a target date fund unfortunately). If you have accounts already at Vanguard or Fidelity, you might choose a plan hosted there for simplicity, and a target date fund is the easiest option because it will gradually make your investments less stock heavy as each kid approaches college. Happy saving! It’s a great feeling to be financially able to do it and I know you’ll figure out the details!

    I started a 529 for my son when he was around 8. On the advice of a friend-of-a-friend financial planner, I started putting $500/month in it. When freshman year rolled around, there was enough in there for 4 years at a cal state, or 3 at a UC, or 2 at an out of state school/private school with aid. That worked out great for my family because it was a “contribute and forget it” situation. I learned a couple of things: 1 CA does not offer a tax benefit on a 529 other than tax free growth. 2. It is absolutely essential to have your child apply to a “financial safety school”. Other people will know more, so I hope you get lots of responses. 

    It’s never too late to open a 529 account, which I would highly recommend. You don’t need to pay a financial advisor to tell you this. Go to the Vanguard website, which offers lots of information about 529s, and you can open the account online. This is a much better option than a regular savings account because you won’t pay taxes on any of the gains as long as you use the money for education expenses. Set up an account for each child. Even if you don’t have all the money you will need for college, it’s nice to have something saved up in advance to lighten the future cost of college. 

    Its never too late to start and saving anything is better than nothing! We do a 529 and like the ease of it, its also really easy to give a donate code to friends and families for birthdays. Unfortunately CA does not offer any incentive or benefits for having a 529 so you don't have to get the CA one. We actually use the NY 529 plan because they had the best rates at the time. My advice is to hunt around for the lowest rate 529 you can find. Otherwise, if you have a large amount to deposit up front you can consider a high yield savings account, but usually those require an initial deposit that is high. 

    You should open a 529. The major benefit is that the earnings are tax free and withdrawals can be taken tax free if used for educational expenses. That won’t be true for savings in a regular account - any earnings will be taxed. Within the 529 account you can choose the type of investment you want to make, ie more aggressive and volatile (mostly stocks) or more moderate and stable. You should take into account your level of risk tolerance in making that decision and you may want to talk to a fee-only financial advisor (not commission based) about that. You may think you’re getting a late start but you still have time to save a good amount. Good luck!

    There aren't any quick-fix ways to catch up on the years of investing that you've missed. Here are the options you have-

    • High-yield savings bank account: ~2.5% annual percent yield as of today, rates change. Interest you earn is taxed. Parent-owned high-yield savings accounts have a relatively minimal impact on a student’s financial aid eligibility. But, high-yield savings accounts owned by a student can reduce the student’s financial aid eligibility by 20% of the account value.
    • Regular/money market savings bank account: <0.5% APY. Taxed.
    • 529 plan: variable, depends on the stock market and how aggressive (risk-taking) you want to be. Interest you earn is NOT taxed. It functions a lot like a Roth IRA. In California, contributions, unfortunately, do not qualify for a state income tax deduction.
    • Private college 529 plan: similar to above but it locks in the tuition at select colleges at today's rate.
    • Regular stock brokerage account: similar to 529 but interest you earn is taxed. Money can be used for anything in the future, not just education.

    I was in a similar position to you ~10 years ago. My older child has delayed college and may never go. My younger child is a sophomore in college.

    The answer to your question is basically a math problem based on projections and assumptions. If you use a tax preparer or financial advisor, I suggest you start with a conversation with them. The 529 Plan has a limited number of funds to invest in. When my spouse and I looked at the available funds versus what we would choose on the open market, we found that the tax benefit did not outweigh the estimated return on investment. The market is quite different now. You'll need to assess based on your tax rate and current market conditions.

    If you choose to forego a 529 Plan, I highly recommend you establish an earmarked account with automatic deposits for each child. If you are not working with a tax preparer or financial advisor who can help with this question (and others!), I suggest you begin a relationship with someone you feel you can trust.

  • CA 529 or Vanguard 529?

    (4 replies)

    We recently had a baby and are trying to determine whether it would be better to open a 529 through CA (ScholarShare 529) or Vanguard. 

    We are looking at target enrollment portfolios and there doesn't seem to be a big different in fees (.12 for ScholarShare and .14 for Vanguard). From what I can tell, the Vanguard 529 is more aggressive in the earlier years with more equities than ScholarShare 529, but then levels off later with more bonds. Curious whether any other parents considered these two plans and which one you decided on?

    Thank you!

    We used to have the CA529 but switched it to the Utah program because of fees. But this was years ago and fees in CA529 may have gone down to be similar to the Utah529.

    We use the Vanguard fund given lack of tax benefits in CA for 529 contributions, and ease of use of Vanguard (since all of my family’s IRAs, taxable brokerage funds are there). Vanguard does not require using the target age adjusted funds; you can also use a wide variety of funds (eg total stock market indices) if you prefer to be more involved in picking funds. 

    We also switched to Utah's my529 program, based on Morningstar ratings. They allow 3 investment options - target enrollment, static investment and customized. Customized is the highest, ranging from 0.14-0.49; target is 0.14, and static is 0.11-0.22. I almost went with Vanguard, but Morningstar had downgraded it last year, which you can read about in the 2021 Morningstar report.

    We are also enrolled in the Utah 529 because of fees and rate of return. We started  it 7 years ago, so not sure whether the CA 529 plan has improved.  Good luck!

  • When the twins were born I began to save for their college education in my own Roth IRA, the maximum annual contribution. I was planning on 16+ years growth. As the owner and contributor I can withdraw from the account any amount at any time.

    My son is now (six months) the unwilling spouse in a high conflict divorce and custody battle. I am questioning my position that the grandtwin's college fund is inviolable, and weighing the pros and cons of spending some or all of the twin's fund for his myriad legal battles to counter parental alienation. His lawyer is doing a good job, but every email, phone call, letter, and motion costs $250/hour.  

    This is such a personal decision, but I would spend the money in a heartbeat.  Parental alienation is the worst and in my personal opinion is especially tough to counteract when it is implemented against the fathers since most (but not all) moms have a closer relationship with the kids while they are young.  I feel ok saying it since I'm a mom  and see some of my female acquaintances doing it to get back at the ex, which I think is totally messed up (though I stay out of it since it is none of my business and secretly glad that the dad is fighting them on this).  Frankly, if your son fails in his battle to keep partial custody and counteract the parental alienation of the (I assume) mom then you likely would too effectively lose your grandchildren by not having a relationship with them.  Would you really want to spend the money in your Roth IRA on the education of your grand-kids who you and your son hardly know and who don't feel that your son is their father?  The twins can take loans out for college education, but if your son loses the custody battle and in countering parental alienation you and your son will likely lose out on having a relationship with the kids as they grow, and there is a decent chance you might not even want to pay for their college when the time comes.  If this was my son, I would use all resources in my disposal (including their college fund) to help my son keep custody and a solid relationship  with his kids. 

  • Starting a 529 plan in today’s market

    (5 replies)

    i did some reading up on 529 plans, but when everyone is saying to liquidate my own investments and hold them in my retirement accounts as cash, is it smart to start seeding money into my newborn daughters 529 plan when the market is so volatile?

    A 529 is a long term game and timing the market is not really possible. The key is to start saving. Good luck!

    This is the whole point of a 529 plan.  The earlier you start investing, the more time you have to accumulate shares through all the gyrations of the market that might happen in the next 15-20 years.  When the market declines, try your best to just view that as an opportunity to accumulate greater numbers of shares.  Also, if you think you might panic, choose an all in one fund that is timed to your child's age and automatically rebalances towards a less conservative asset mix as she/he gets older.   

    Oh the market is so volatile! I am losing my mind every day checking my retirement savings. That said, I would not delay starting a 529. The market is volatile, but it is inching up. Just start putting about $30 per month in the 529; seriously that is coffee money for many people. Over time it will grow more than you expect, even for us, surviving and rebounding from the 2009-2010 recession. My daughter will be starting college in the fall, and just by contributing about $2,000/year since she was young, her first two years of college/dorms will be completely covered.

    I’m not sure why you wouldn’t. You’ll be drawing the funds 18 yrs from now. By that time any current market volatility will have little bearing, it seems, compared to your alternatives. You’re not going to just hold cash in a bond or money market, would you?

    I think it’s a wonderful and prudent idea to start funding your newborn’s college fund. It’s never too early. The 529 plans have a large variety of funds with varying risk. You can choose how aggressive or conservative you want it to be. I find Vanguard to be the best - lowest expense ratios with the highest returns. They have some funds that outperform actively managed funds from other financial institutions. We opened a Vanguard 539 with the state of Nevada because it had the best rates and returns. 

Archived Q&A and Reviews

Starting a college savings plan for my 7 year old

May 2014

Hi - I am finally able to set up a college savings plan for my 7 year old. I have $15,000 I can put into it right now. And will be adding $200 per month from this date forward, hopefully. Should I make an effort to add more than this (I also am trying to put aside money for my own retirement, and extra money is very limited right now)? Also, how should I invest this so I can maximize this amount of money? A financial advisor recommended the Scholarshare 529 plan, saying it's one of the most highly rated plans in the country. I will very likely be living in California throughout my child's school years, and it will be my sole residence. When I read old messages about this on BPN, scholarshare gets pretty mixed reviews, but most of those posts are several years old. Any advice is very much appreciated! I'm also assuming, like many of us, that my child will go to college! He's pretty academically inclined, so I think it's a safe bet, but no guarantees. Thanks. hoping to not have to borrow money for college

My dad set up a California's 529 ScholarShare College Savings Plan plan for my kid when she was young and then I took it over and put money into it over the years. It did pretty well, even recovering from the 2008 debacle, which is the year she went to college. We did not use the money until her last year, by which time the principal had been brought back up and then some. We chose a socially responsible investment as the fund in the 529 program. Be aware that any money in your child's name counts when it comes to applying for financial aid. Also, it's prudent to fund your own retirement first, then your kid's education. Good luck! Barbara

Aah Scholarshare and putting away money for your 7 year old child. We did a similar thing - put $90,000 into a Scholarshare account when our daughter was 12. Looking back, it was a mistake. It would have been much better to keep all that money in a savings account in the parents' name. Here's why:

1) when our daughter got into college, the financial aid forms ask ''How much money does the student have''? Any money in the child's name is taken directly off any need-based scholarship. But for money in the parent's savings accounts, something less than 100% is considered in the calculations. Our Scholarshare donations guaranteed that our daughter would receive nothing for need-based scholarship. The full $65,000 for her first year at an Ivy League college is being paid by her scholarshare account - not a penny from the university's need-based support. (My wife and I together earn about $90,000/year, and do not have much money or retirement investments)

2) The amount of interest in legitimate, low-risk investments is nearly zero. This means that there's no tax advantage to putting the money into Scholarshare.

3) The overhead costs of administartion (through Wells Fargo and thence Fidelity Investments) has been greater than any tax savings.

4) The amount of paperwork is impressive - we just don't have time to pay attention to the monthly forms that arrive.

I'm not considering issues of who'll control the money if the 18 year old doesn't attend college, if there's financial troubles when your kid turns 13, or what happens if the investments tank in the seventh year. I'm not a financial advisor - just an ordinary parent who should have kept the money in his (and his wife's) savings account. Need based dad

Good for you for starting early and making a long term commitment.

We have been using the CA 529 plan for saving for our kids college education (1.5 years to go!). The latest company running it has low fees for the funds. You can shop around at:

CA was #10 last year in their rating system:

Right now, there is no state tax incentive to invest in the CA 529 plan, so you can invest in any state's plan that allows out of state participants.

Some state legislators are trying to pass a CA state tax incentive for contributing to the CA 529 plan: -parent of twins

A few things

1. There is no tax benefit to being the CA plan as a CA resident - so pick the plan you like best

2. How to invest it - unless you are an active and savvy investor you are probably best off with an aged based plan (e.g. you tell them he's 7 now and they adjust the investment as your child approaches college age). Most of us just don't have the time or commitment to actively manage the investments for the next 11 years.

3. Lastly, save for your retirement first, then your kid's college. Remember you can borrow for college - you can't borrow for retirement.

Also if you are an older parent you can start withdrawing from IRAs at 59 1/2 which may be when your child is in college. (Check with your work to see if you can do this with your 401k). So if you or your spouse are older then I would max out all 401ks / IRAs before putting money in a 529.

What are you doing for college savings?

April 2014

hi bpn community, not looking for financial advice but more of opinions and examples of what you are doing for college savings. we have 2 kids and are currently saving 12k a year for college. they are still 10 years away from starting but we've had friends tell us recently that 529s are nt the best vehicles for saving (kids may not get any aid with a big 529, etc)... that we shouldn't save exclusively in that and might want to invest instead in a small 2nd home (pay mortgage with teh 529 saving amount). has anyone done this? i can see the sense in this and want to explore it further? your own college saving stories (529 or non 529) are welcome. anon

I think 529's are the best way to go because any gains are tax free when used for educational expenses.

You have to declare your assets (including your primary residence and any other real estate holdings) on the FASFA (student aid) form, so investing in real estate won't prevent that money from being counted.

Our kids are now 17 and the time is growing near. We started early saving for their college expenses and rolled the money into a 529 account as soon as we they were made permanent. The 2008 recession didn't help, but the market has recovered and a large percentage of the value in their account is gains which won't be taxable.

Our target for the 529 account was 50% of their expected 4 year expenses at a UC assuming no aid. Since the money has to be used for education, we didn't want to have too much money in there in case they got aid of some type.

We used the index based target date fund in their 529 accounts. It invests more conservatively (more bonds) as they approach college age. That makes things easy. -parent of twins

I feel like we are you, 10 years in the future. We saved at about the rate you've been saving, and now that our first child (of 3) is going to college in the fall, we don't qualify for aid. We ran the numbers again, leaving out the 529 plan, and we still don't qualify for aid, so my feeling is that your income may disqualify you from aid as well, so you might as well take the tax break from the 529 plan. Having 2 in college at the same time may change this, we'll have to see. About 5 years ago, we started putting our savings into much needed repairs on our home instead of into the 529 plan. Our back-up plan is to borrow off the home equity if we need to.

Saving for kids -- 529 vs. UTMA, other?

Sept 2013

I'm looking to set some money aside for my kids' college and other expenses (a 2yo and a newborn), and I'm wondering if anyone has any knowledge/advice about different options. A friend suggested a 529 but I'm concerned that if my kids go to school where my spouse or I work (hopefully we'll both be university employees), we won't be able to use it, and we'll have to pay a lot of penalties to get the money out for other stuff. I started a Uniform Transfers to Minors Act (UTMA) account with Vanguard, but I honestly haven't looked into the details that carefully and I just feel overwhelmed by all the fine print everywhere. Any advice would be much appreciated! Thanks!!

Generally speaking, a 529 account is better because of the tax advantages. The gains in a 529 account will be entirely tax free. Gains in a UMTA, by contrast, are taxable.

There are plenty of 529 plans that do not at all limit where the money is spent, so long as it genuine education expense. Since California does not offer any state tax benefit for using a California 529, you could use any state's fund. Nevada and Utah both offer good programs using low-fee Vanguard funds.

If the 529 account were established by a grandparent or other trusted family member, at least under current rules, it would be advantageous from a financial aid point of view when the time comes. You could still contribute, though the grandparent or other family member would retain control of the funds. College saver

As you will probably hear from others, 529 funds can be used at any qualified educational institution anywhere--not limited to the state you live in or where the plan is housed. That said--it can only be used for education--worked like a charm for our older son--our younger son who look leave after first semester--we'll see...You can transfer the funds to another relative (eg cousin)

You also continue to own and control the 529 funds once the child is no longer a minor--which I don't think is true for UTMA--check the internet/fine print, etc education expenses--OMG...

You weren't completely clear, but it sounds like if your kids go to where you are working, their tuition would be free at that university?

Remember there is still room and board and computers and books to cover. There was a recent article that said that even with the high cost of going to UC, the cost for everything else (room & board, etc.) was more. So more than half the cost will not be tuition.

We've been using a 529 plan for many years and are working towards having about 50% of the cost of UC (including room & board) put away in that account. That way if they go to a less expensive school or get a scholarship, we won't have to worry about penalties.

The advantages of the 529 plan is that you control it, there are high limits for contributions, and it is tax exempt (if used to pay for college).

Here is an article that discusses a UTMA account vs. a 529 plan: -Parent of twins

'Upromise' to generate cash back for college?

June 2013

'Upromise' by Sallie Mae ( seems like a great way to earn cash back for college on purchases from tons of major stores with no risk or obligation but it also seems a bit too good to be true. Does anyone have experience with Upromise as a way of contributing to a college savings plan? If so, are happy with Upromise so far? Have you been able to successfully contribute to a savings plan with the 'cash back' offers from stores like Target? Did any of you sign up before your child was born? Are there are any potential downsides to signing up? Any insight is much appreciated. Thanks! Saving for college

We've been signed up for Upromise for over 10 years. It works best if you can get other family members to sign up as well. We have saved several hundred dollars over that time period with very little effort beyond the initial set up. It's worth setting it up, but you would have to be very dedicated to using the site to generate very large returns.

Upromise was purchased by Sallie Mae a few years ago. I've actually set it up now to pay back my grad school loans rather than save for the kid's college. Again, it's not a lot of money, but it takes no work and something is better than nothing. Long time Upromise user

[Moderator's Note - According to the Upromise web site SLM Corporation and its subsidiaries, including Sallie Mae, Inc. and Upromise, Inc. are not sponsored by or agencies of the United States.]

College savings plan 529

Nov 2012

I was reading recent discussions about 529 college saving plans on BPN and would like to know what state plan is preferable for a California resident. What do you use? Trying to deside between California ScholarShare, Utah, Alaska, Virginia (VEST) vs other. Is is better to have a financial advisor for opening a college savings plan vs to use direct plans? Your advice will be greatly appreciated! interested

In short, you want to pay the lowest possible fee, expressed as an annual percentage of the assets in the plan. You can compare all the options if you like. I chose California's plan as its lowest cost option has a fee of 0.18%, which is quite low relative to most investments. I didn't want to deal with checking out every other plan and other than cost, the only advantage to using a specific state plan is that some states (NOT CA) offer a state income tax deduction. However, if you don't pay state income taxes in that state, it is meaningless. California, as a very large state, is likely to get some of the lowest rates as it has a great deal of bargaining power. I would not recommend a financial advisor, nor an active investing strategy as both of these will raise your fees and therefore reduce your likely return on investment. Read this: I try to put a fixed amount of money into the 529 every month, on approximately the same day, into an age-based passive fund. This strategy may or may not be better than investing a fixed amount up front, but it is my choice for now. ex-finance guy

We don't use any of the CA plans as they are not rated highly. We have 2 plans -- in Utah and Virginia -- these are consistently rated among the top plans. anon

When we looked into it, California didn't have any in-state tax advantages for it's plan, and we assume that's still true. Our advisor told us that he invested through the Utah plan for his kids, and that there is no reason for us to go through an advisor. The investment choices are through Vanguard funds and are not that complicated; you can decide based on what grade your kid(s) are in. The key is keeping the fees low, which Utah and Vanguard do very well. Chris

Well, there are a lot of pros and cons and a lot of it depends on the age of your kids, how much you want to put into it and what else you are doing with your financial plan.

I actually have a 529 plan with New York Life Insurance Company, but my Agent Alex showed me some reasons why I should contribute into life insurance policies for my kids. The money does not have to be used for education and it will not be looked as an asset when under consideration for grants and scholarships. I'd consider getting a Roth IRA if you qualify for it. My agent Alex Hyunh can be reached at 415-393-6014. He lives in the East Bay and would be happy to talk to you. Randy

College savings reality check

Oct 2012

I'd love a reality check on our college savings. We have 85k saved for our 10-year old and 82k saved for our 8-year old. We are currently putting $600 per kid, so $1200 total, into their California 529s each month. Are we on track? Do most people have more saved? From all the calculators I've used, it seems like UC Berkeley tuition and board will be about 250k or more for each child. (UCB is our benchmark because we aim to pay for a UC-level public undergrad degree for each child, but would require them to take loans for the difference at a private school.) From the research I've done, we will not likely get financial aid, as our income is over the limit. -These numbers make my head spin!

We have a 10 year old and an 8 year old and a 2 year old. And have ZERO saved for college. Heck- my husband is 46 and has only about 7k in his IRA. Don't really know what we will do but we don't have the money to save and I believe my kids will have to work hard to get scholarships, work a part time job throughout college, maybe attend community college first, and not attend Ivy League or prestigious private schools. I did all of these things and I'm proud of that period in my life. Taught me responsibility, hard work, and gratitude for my education. And I have a great job and a happy life now for the most part. Really- don't worry. It will all work out. Just scraping by

I don't know what the right answer is, but I know that you're waaaay ahead of us. My kids are a bit younger (3), but all we've managed so far is to put $75 a month in per kid, plus occasional birthday checks from relatives. I know we're not keeping pace with what tuition will cost, but I honestly don't know how to save more at this point (unless we stop doing any retirement savings, etc. which would not be wise). My hope is in a few years when we don't have daycare to pay for (or my own horrible student loans, which have about 5 more years), we'll be able to up our contribution a bit, though of course the earlier the better due to compound interest, etc. And I know that we're actually doing better on the savings front than some of my friends who haven't save any. So, I say: well done! --hates thinking about money!

You're doing pretty well. Based on a 7% annual return (which of course may or may not happen) the money in the 529 will roughly double when your oldest is 20. Between that and your current contribution rate you are on your way to 250k. It is difficult to answer precisely because the cost of tuition and the performance of the funds in the 529 are huge variables. Remember to keep other debts down, you would not want to contribute to education at the expense of other high interest debts such as credit card debt. David Financial Advisor

sounds like you need to slow down! Use an online calculator. At the rate you are going you will end up with way too much in there and then get hit with penalties for not using it for your kids college. I am personally not a big fan of 529s as you can only use them for college education (what if god forbid your kid doesn't want to go!) plus you have so little control over how to invest the money. I'd max out everything else first - 401Ks, IRA's etc and use these instead - the major caveat being if you will be old enough to withdraw from them when your kids go to college. don't like 529s

It sounds like a fairly aggressive savings plan. Mine are 10 &12. Due to sheer luck my 12yo inherited enough for four years. My youngest has about $40K. We are saving more aggressively for retirement as my husband is older. My husband plans to work at least part-time and help the boys through school, we told them not to expect much in the way of luxury but that we would pay for college so when they graduate they will owe ZERO, our gift to them!

I have an older set, two who graduated in the last three years and one wrapping up her Ivy education in December. While she will work at school during the spring semester and pay rent waiting for her friends to graduate with her and walk, she won't have to pay the $20K tuition next semester! WOOHOO! Her two older brothers paid for 3 years at their respective private schools, they managed to transfer a year of credit in through their AP classes. The carrot was they could travel/intern etc with the difference. One took a gap year after two years of school and came back and finished his one year. The other started a non-profit in school and simply wanted to hurry up already be done so we offset his post grad living expenses for a year. You don't have to pay upfront so you can contribute to the youngest and simply the supplement the oldest with whatever $ you would be saving, it sounds like you will be fine! Money mom

It seems like you're already saving as much as you can & planning ahead for your children's college education. The numbers you mention make it appear that you're not quite where you want to be by the time your boys head off to college. Yet, you're way more prepared than many of us, me included. Maybe just knowing that will help you relax & know you're in pretty good shape!! Only the wealthiest & most fortunate can reach a 100% funded state for college at today's projected prices. At least you'll be in good company. keep breathing

Maybe the moderator will reject my reply but... I just don't understand how strangers can answer your question. How can we know if you are all set for college? We don't know your income, or career prospects, or assets. Two families could each have the sums you've saved (which sound astronomical to me since we aren't able to set aside more than $3k a year for our kids) ... and could still have wildly different overall situations. The question is more appropriate for a professional financial planner. Bewildered in Berkeley

This doesn't directly answer your question, but given the comment one poster made about the restrictions on how you can spend funds in a 529 account, I'd like to gently point out that you cannot know now who your children will turn out to be. You cannot make them college material if they aren't, by aptitude or temperament or maturity. And if that's the case, you might want to have more flexibility with what you've worked hard to put aside. Just my 2 cents

Just want to post a quick response to one of the recent responses. Ivy League and other prestigious private schools are in some cases MORE affordable than California publics for qualified middle income kids, and the California publics are on a trajectory of getting less affordable as costs continue to grow beyond revenue. It's true that less prestigious privates can be pretty hard to afford, but the most elite private schools generally have deep endowments and impressive aid programs that go higher into the income range than you might think. If your kid does well enough to be accepted into these schools, please do not write them off until you see the total package and do the math carefully. Make a spreadsheet and compare apples to apples (e.g., make sure the listed ''cost of attendance'' includes the same things, make sure loans and grants are treated separately, understand that some schools put parent loans and work study in the letter while others don't even though they are available, get information about how the package is likely to change over the four years, pay attention to time-to-degree averages so a fifth year doesn't catch you by surprise, etc.). Financial aid is complicated, so avoid assumptions -- apply and make your decisions on the basis of facts. Anon

Hi, You sound like you're in good shape. We've got 14 years to go and have saved 6k for each of our 2 kids . We're putting away 250 a month for each kid and hoping to get up to a 500 a month each in a couple of years but that's not going to give us what we need to cover their tuition at 100%. We're hoping that if we still have decent jobs, we will pay 50% from their college savings and the remainder from our salaries. We are putting the max available into our 401ks and with mortgage and living expenses, can't do more right now. I hope you're not funding your 529s at the expense of your retirement. Everyone I've heard says take care of your retirement first. Good luck! although I think you don't need it -- you're doing great. anon

Follow up to the benefits of 529 account

Sept 2012

I would like to follow up on a BPN member's question last week about the benefits of a 529 college savings account. I've heard that a 529 account can have a negative impact on a student's financial aid/scholarship prospects because it is seen as income (i.e. let's give the funds to another student who does not have any reportable savings). Do students need to report 529 account balances when applying for college aid or scholarships? If so, is a traditional savings account in the child's name a better bet (or do these savings need to be reported too). -Still confused about the pros and cons of 529s

Per advice from a college financial aid adviser who spoke at my child's high school 8 years ago, I put the 529 education funds in my name with my child as beneficiary. It was counted as part of my assets, not my child's. I don't know how the university calculated my child's small savings account and my assets; it gave a scholarship and grant for the entire undergraduate studies. Hope this helps. another mom

529's count as parental assets. Financial aid/FAFSA usually counts about 5.5% of parental assets as available for paying tuition. (or 0% if parents make under a certain amount like 50,000 combined, I think). Kids' own funds usually are charged a higher rate-- about 20% are assumed available for tuition. But as of 2009 or so, kids 529's count as parental assets, not kid ones, so they're assessed at the lower rate. Obviously some of the details of this can change between now and when your kids go to college (and my numbers aren't exact). But for me, it's worth it to not have to pay the tax on the income earned, hence we have 529's for our kids (though right now we can only afford to put in a tiny bit a month). But it's basically like a Roth-IRA for college. --thinking of tuition prices still make me queasy thought!

Are we saving enough for college?

Sept 2012

I find it difficult to understand HOW MUCH to save for college. I would like my two kids to graduate debt-free from a UC, so we have been saving aggressively since they were born. The problem is, I don't know if we are saving enough, and nowhere have I found a ''magic number'' of what we should save. Right now we have saved about 150K (75k for each child) in the CA 529 plan, which will hopefully grow before our kids (now 7 and 10) start college. UC Berkeley predicts tuition and room and board will be around 250k for each child when they attend, so we're basing our savings on that number. We had planned to save about half, and then pay the rest out of income. But should we save more than half, especially since both may go to grad school or end up going somewhere more expensive than UC? How do we compare to others who are saving? I know it is a delicate topic and we are grateful for our extreme cheapskate-ness that enabled us to save so much already! We don't count on getting any aid, as we have two incomes. -Saver

A little perspective from a bookkeeper. You didn't mention weather you are saving for retirment. You should first maximize retirement savings before college savings. My point is that it will be reat if your kdis graduate debt free from college, but if you haven't saved enough for yourself you will become a burden on them at a difficult time (by then they'll be married with kids and a mortgage).

I am guessing you got that number from an online calculator. Unfortunately, the calculator doesn't take change into account. All these numbers are based on today's situation. the reality is that if your kids are young, by the time they go to college, it will not look anything like what it looks now. I have done the research and it is very compelling. All major schools including Harvard have started online courses. You might think you want your kids ot have the ''college experience'' but they will most likely want what is available by then. So first, maximize your retirement savings. Put money in a ROTH which you can borrow from for education and continue your 529 if you can. anon

We are going through the same thing as you. We also decided to save about 1/2 of a UC education (living on campus). We aren't counting on any needs based aid, but maybe our kids will get a merit based scholarship. If not, we will pay for it out of savings.

As far as graduate school goes, we haven't decided about that, but I feel they should have a financial stake (i.e. work first or take out a loan) if they want to go to graduate school. We have talked about paying for 1/2 of graduate school if they want to keep going right away. -Parent of Teens

Here is an piece from my father-in-law's email to me when I asked him a similar question a few months ago. He recently retired as a Vice Chancellor of a major university back east and stays on top of these things. He and my mother-in-law are helping us with a 529.

First, what will a top private university or college cost ten years from this coming summer when your child will be packing his bags? Right now they all cost more or less in the low $50K region. In the recent past private college price inflation has been as follows: in the decade of the 1980s, 60% (there were several years of horrendous inflation); in the decade of the 1990s, 36%;in the decade of the 2000s, 29%. I have used the average of the past two decades - 33% - to project for the next ten years. This leads to the conclusion that tuition at the top private colleges will be roughly $70K by the summer of 2022 when your child heads off to college (NOTE: he's currently in 3rd grade). I think that is a pretty good estimate. In fact, I suspect that heavy social and political pressure will actually lead to an inflation of less than 33%, but I want to be conservative.

What about the payment side of the equation? Right now your child has a bit more than $125K in his college account (this would send him to Berkeley for four years if he were entering next fall). I assume that his education account will see appreciation of 3% per year, on average. Again, I think this is a prudent assumption. We intend to add $10K per year to the account. If you run the arithmetic for ten years, you find that the account should have a bit more than $280K in it by the summer of 2022.

Thus, with all these assumptions, your child should be pretty well set when the great day arrives. Of course, I'll monitor progress closely to see if alterations are called for, but I feel pretty good about the assumptions made above.

Finally, what about public universities like Berkeley and UCLA? Their tuitions will very likely rise faster than those of the private universities, but it's very unlikely that they will equal or exceed private tuitions ten years from now, so your child will also be covered for attending a public university. Hope this helps

Unfortunately there is no easy answer as so much depends on your individual situation. Are you funding the 529s at the expense of paying off your own debt, are you contributing fully to your IRA or 401k. Given what you've already contributed, you're off to a great start. I'm guessing you are putting in around 700 a month, which is a fantastic amount. It's more a question of what to prioritize. Once that is figured out, then determining the proper amount is easy. David Financial Advisor

Hello - I thought your question was great, so I posted it to the Wells Fargo Community ( It is a new forum to talk about education planning questions. Check it out to see if someone there can answer your question. I too will check back, and then post the answer in the BPN. scoles

Saving for College - what's the advantage of a 529

Aug 2012

I have read investment guides and and I think I understand how a 529 plan works. But I am not clear on why (or if) a 529 is a better savings vehicle than a regular investment account. Your contributions aren't pre-tax, right? Is it that the withdrawals are tax-free while investment withdrawals may be subject to capital gains tax? Is there some other subtlety I'm missing? Would appreciate some collective wisdom on 529s! Thanks. Not Seeing the Benefit

You aren't missing anything. The benefit of 529s is tax-free gains when the proceeds are applied to qualified higher education expenses. If invested over a long period of time (e.g. 18 years), that can be a significant benefit. Let's say you contributed $1000/month (or $100/month and subtract a zero from these calculations) for 18 years and got 5% growth (obviously, not without risk, but when you have 18 years, you should be able to take on some risk). You would have invested $216,000 in total and would have $351,000 by the end of 18 years for a tax-free profit of $135,000. Even at 3% growth you'd have $71k of tax-free profit. There are other alternatives and it all depends on your total financial picture, income, expenses, etc. Happy to discuss in more detail if you'd like. John, Certified Financial Planner

We set up 529 plans for our children when we were living in a state that allowed for up to a $10k state tax deduction. (We were not able to deduct the amount from the federal taxes however). We took advantage to contribute the maximum amount needed to receive the tax deduction for many years. anon

Hi, So the one benefit that you may be overlooking with a 529 is that the contributions grow tax-deferred in the account (meaning the capital gains or compound interest gains never get taxed up the withdrawal AND your contributions are never taxed). It's basically a tax shelter for education savings.

529s are great, the one downfall is that you have to use the money for education, if not you get penalized. There are like investments that can do the same thing (tax deferred growth and tax free withdrawals) but do not limit how you use the funds. This is different from a mutual fund/stock investment that IS taxed on capital gains.

Anyway, as a mama and financial associate, this conversation is constantly on my radar. I'd be more than happy to discuss this more if you need additional info. Elizabeth 415.595.2406 Elizabeth

While both contributions to a 529 and regular brokerage account are with after tax dollars (at least in the case of Ca residents) qualified distributions from a college payments are tax free. In the case of a regular brokerage account you're paying cap gains tax which right now is 15% (note this rate may change quite a bit in both directions over the next 20 years) You don't necessarily have to use the Ca 529 plan, I'd be happy to go into more detail about the ins/outs of the plans, feel free to contact me. David financial advisor

Original poster here. Thanks for the responses to date about the tax advantages; however, I am still wondering about the basic question: why a parent would open a 529 for a child. Do colleges consider a 529 to be totally the child's asset, thus they would tap all of it? Whereas if the parent just kept that same hypothetical amount in a regular account, it would be tapped at the lower parental contribution rate? Thanks for any advice! 529 Confused

If you get a 529, do it in your name, not your child's- then the money will count as your asset, not the child's. Then you also get the advantage of no taxes -so it does make more sense than just your own savings, which you have to pay taxes on. We have used the Virginia Savings Plan- VEST-and the child's name is on there as the beneficiary- but it is in your name. anon

How much to save for college?

May 2012

I'm wondering how much other people are saving for college. We have two kids, and the UC Berkeley online calculator estimates a BA will cost 250k for one and 270k for the other (they are 7 and 9 now). We hope to save at least half the cost of a UC-level education (260k) through aggressive saving, then pay the other half through current income while they are in college. I just put all of what's left of my paycheck into their 529s each month after living expenses and taking out the maximum for retirement. Is saving half enough? Are other parents trying to save the entire amount? Please advise as to how much is enough! Thanks. saver

Hi - I don't have all the answers (am interested in what others will say) but thought I would share my thought process. We have also set a goal of saving about half of the amount we expect to need for college in 529s for our 2 kids. Obviously, 529s have their advantages so we don't want to end up with much less than that the 50% mark. But the downside of trying to save ALL of our anticipated college expenses in 529s is that you can use that money ONLY for college (or pay penalties). My hope is that my kids (now in elementary) will be able to go to the best college they can get into, even private, but by the time they are 18 they will make their own choices that could end up being cheaper than what I would plan for them (community college, no college). Of course, that would be a good problem to have from a financial perspective, but my point is just that their are downsides to trying to fund ALL of college in a 529 in case you don't end up needing all that money for college specifically. So we are aiming for half in 529s and half in other vehicles (CDs, mutual funds) that could be used for non-college things. ''Half'' is an arbitrary distinction though and I would be curious to see how others have made this decision. Also, these are all pipe dreams at this stage as we are nowhere near our savings goals! college dreams

really? $260k for a public college? those amounts are just gross! the regents should be ashamed at such numbers! i am guessing that the moderator won't post this, but we, as a society should be doing something about the ridiculous cost of higher education... [FROM MODERATOR: Nope, I'm fine with that comment.]

but specifically... life isn't really like what you are expecting... a bill doesn't come for college. living expenses, school choice... continuity of education is often interrupted by life changes.

the cost may be spread over 10 years... or not. other life circumstances (divorce, economy, death). yes, put some $ aside, but don't forget to enjoy life father of 20 somethings

Just something I read recently: Noting that for many people the goal of saving even half of college costs may not be feasible, the article suggest dividing it in thirds. One third paid from savings; One third paid from concurrent work earnings (yours and the student's); and one third from loans. Sarah

I was hoping to see responses to your question but did not see too many.

We have kids under 5 and are trying to put around 3k in each account (hopefully more once they are over 5 and we won't be paying for preschool). We have not gone to financial planners but what I've heard that is you should make you are very secure for retirement before putting all your money away for school.

I've also heard that putting all your money into 529s might not be the best idea as it decreases your eligibility for any kind of aid/scholarship.

We *hope* to be saving 75% of their costs before they start college and then pay with our salaries when they're in college.

There are so many unknowns... if we'll have jobs, health, mortgage, etc. so we are trying to save as much as we can now. Other than the 6-10k we will try to put in a college fund every year, we will invest our savings some in mutual funds and CDs and use those for any emergency/needs that might come before college; whatever's still there will go for the kids'college.

I agree with the other person who gave you advice though -- how obscene that this is the price of college... half a million... look at the ''great'' retirement benefits at UC, the high salaries for the president and his elk and you know why. in the same boat

I have been following this string about saving for college, and wanted to pass along the link to the Wells Fargo Community ( It seems like there are some good college planning conversations going on. scoles

Using life insurance to pay for college

Feb 2012

I am beginning to educate myself about life insurance and it sounds like a better way to save for college than a 529 plan if I understand this correctly. Please correct me if I am wrong - if I get a whole life policy that's paid up in say 15 years, I can borrow funds from the policy to pay for my child's education if I am able to still pay the premiums and pay down the loan. In the event I cannot pay down the loan, the benefits that will be distributed at death will be reduced by the amount of the loan. Or, if I am fortunate enough to not need to borrow the money, I can still withdraw the dividends when I am retired without touching the principal, supplement my retirement income and pass the principal to my heirs. Have you done this? What downside(s) am I not seeing? This sounds too good to be true. Why are people buying 529s at all if an insurance policy is this good? Puzzled about life insurance

I'm a Certified Financial Planner and I can tell you there's much debate in the planning community about this one!

Some people believe nobody should ever buy a permanent life insurance policy and you should always use 529 plans or other traditional investment portfolios for college. Others believe that permanent life insurance is the greatest planning and investment tool on the planet and you should buy as much of it as you can possibly afford. I personally believe that both extremes are oversimplifying things and you need to look at it on a case by case basis. In my personal situation, I own both a 529 plan for my son as well as permanent life insurance.

Since it's so complicated, there's no way to go over all the details in this forum, but I think the basic tradeoff is one of expenses vs. flexibility.

Permanent life insurance (you describe it as Whole Life, but if you are going to look at this type of solution I'd strongly recommend broadening your search to other forms of permanent insurance including variable universal and indexed life) is inherently more expensive than 529 plans because you are also paying for the death benefit. If you die, the 529 plan is going to be worth whatever the mutual funds in it are worth, but the life insurance policy is going to be worth a significant multiple of that amount. As a result, it has to cost more money.

The benefit of paying extra expenses to invest in life insurance over a 529 plan is that you aren't restricted to just using the money for college. With the 529 plan, if it doesn't get used for higher education, you lose the tax free benefits and pay a penalty, so you want to be confident that it's going to be used for education.

I think permanent life insurance can be a tremendously useful and flexible tool when properly funded and properly understood. But if you are confident that you'll find someone who can use the invested amount for higher education, then you'll generally get less ''drag'' on your investment performance in a 529 plan. Happy to discuss in more detail if you have additional questions. John

I would strongly advise reading all the fine print regarding costs on the annuity plan you have in mind. Often the costs and fees take a large chunk of your returns. In general I would stick with a 529 or if you're not fond of any state plan you could simply open up a non qualified brokerage account and pay capital gains taxes instead of income when it comes time to withdraw the funds..(which will still probably be lower than income tax rates. Each annuity is different so it really depends on the details of the plan you have in mind. Feel free to contact me if you would like to discuss further, David

Saving for college

Nov 2011

I'm starting to freak out at the prospect of how much college will cost. We have been saving $300 a month in California's 529 plan for each kid every month since they were born (now 7 and 9) in the age-based portfolios. Since the market has been so wobbly, the overall funds are essentially flat or even a bit down since we started. The result is about $35k in each account. From punching numbers into college cost calculators at the average rate of tuition inflation, it looks like four years tuition and board at a UC will be roughly $300k each. So at our current savings rate, we will come up WAY short even for a public education in CA. God forbid they get into Harvard or Stanford. Currently, we could put more into the 529s, as we are both working Silicon Valley jobs. But I'm wary about dumping more money into these under-performing funds. Would it be better to put money in a taxable brokerage account and buy dividend-producing stocks? Or stuff it under the mattress? We don't want our kids to graduate with debt, and plan to pay half of costs from savings and half out of pocket, if we are lucky enough to keep our tech jobs into our 50s. What are other parents doing to save these astronomical sums?! (Note, we are also saving 60k a year for retirement at the moment - the maximum allowable. We live VERY frugally to save at this rate, but feel it's the only choice in such an unstable economy.) saver

Our situation is very similar to yours. My husband and I were fortunate that our parents paid for our colleges. There are a variety of financing options available and our three kids may end up working PT during college or taking on student loans depending on where they go to college. IE we've got the public schools covered but not the Ivys. Don't get me wrong -- we have saved a lot. But we also save for our own retirement and provide our children with an interesting life now of travel, sports, experiences, a nice home in a good school district. Barry Mendelson at Just Plans in Walnut Creek did our financial plan. I suggest you give him or another CFP a call. barry [at] Good luck! Leslie

Keep in mind your children still have 10 years before they will be going to college..try not to focus too much on the day to day..or month to month performance of the 529 plans. While the investment options are limited in 529 plans, most investment vehicles are not performing well so don't feel too guilty about investing in the 529 options. Without knowing all the details it sounds like you are saving as much as you can which is a good thing, try to keep the long term picture in mind. Feel free to email me if you have any other questions about what you think you could or should be doing. David

In your post, you mentioned that you are saving $60,000 annually as 'the maximum allowable.' I am missing something and need to find out what you are doing. Ira is $5,000 and 401(k) is $16,500. Double that and you have $43,000. Add in catch up provisions and you get to $56,000. Where are you finding the additional 'allowable' $4,000 presuming you are both over 50 and $17,000 if you are under 50. If some of this 'allowable' retirement saving is pretax, this could help a lot of us answer the very question you are asking. -help!!!

I'm the original poster about college savings. One person asked how we were saving $60K annually for retirement. We put $16,500 into a company 401k and $45K into an Individual 401k - one of us runs a sole proprietorship. Any help on where to put college savings would be appreciated. We're wary about putting all our eggs into 529s, which don't just offer limited fund options, but you also must pay a penalty if the funds aren't used for college. College saver

My husband and I were exploring the same question recently. My dad belongs to an investing group and I had him ask the group what they did for their grandkids. Most people said to go with the 529 accounts but one person said to just use a regular investment account because he isn't convinced the laws aren't going to change, possibly wiping out any advantage of the accounts. He was also worried about saving too much and then having to pay a penalty. He had one more reason not to use a college account but I can't remember it. They all said to max out retirement first.

We have 3 kids, the oldest of whom is 7. We haven't yet started saving but my current goal is to have $200,000 is some sort of 529 account by the time the oldest goes to college. I figure that will pay for one college tuition. We will use that money as fast as possible and try to put aside about as much as we use, at least when we have just one kid in college. That way, if someone winds up not needing the money, we won't have left eligible money in the 529. Over the 8 years we will have kids in college, hopefully we will be able to put enough more aside to pay for the rest.

Not sure how helpful this is since we haven't actualy started saving yet, but that's the advice we got. Anon

Good 529 plan?

June 2011

Any suggestions for a good 529 plan or alternative? Mathew

You can save for your kids' college in your Roth IRA, and then have the flexibility to spend it elsewhere if your kids make other choices. There is no penalty for withdrawal from a Roth IRA for education expenses, but many people don't know this. I suggest you look up the IRS publication on them (you can see them online or order them free), to read the fine print, but my tax preparer approved my using it this way. anon

We've done very well with the Fidelity 529 plans. One kid is a junior in college now and the other is starting in the Fall and the money we and their grandparents contributed over the years to those plans did well. Of course, the stock market isn't what it used to be, though. We had their money in the ''age-based'' funds, so Fidelity manages the money for you, putting it in more aggressive investments when they're young and gradually moving it to safer funds as they get closer to college age. I found them easy to deal with and their website has gotten easier and easier to use. Now that I'm mostly withdrawing money from it, I can request the money online and have it sent directly to the college. anon

College Savings Accounts - three or one?

May 2011

We have 3 kids who are 2, 4, and 6 and we need to start a college fund for them. Should we start a fund for each kid? I was under the impression that money for any one of the kids could be used for another so maybe it makes sense to just do one fund? If we do just one, should we do it for the youngest but use up as much of that money as we can for the older kids? Will that help us get more financial aid or do colleges only care if you have a college fund, not in whose name it is? Which state's plan is considered best right now?

We can only save a very minimal amount now but hopefully the amount we can put aside will grow as our kids get out of daycare and preschool. Maybe our salaries will even rise one day. Anon

While it's true that money in one account can be used for other family members for education, I would recommend having one account per child. The main reason is that you may want to invest the money differently as each child gets to the point of needing to use it. When you get to that point, you'll want the money in less aggressive investments (the 529 fund manager will often do this for you automatically), but you might want to keep the money for your younger children in something more aggressive until they get to that point. anon

We were told by the bank setting up our kids' accounts to have an account for each of them. They will manage the accounts differently depending on the child's age and how close they are to college (riskier when they are younger, more conservative when they are older). The accounts will be in your name, and the kids will be the beneficiaries of the accounts. So, we set up two accounts and we have a small but equal amount added to both each month automatically from our checking account. Andi

Starting a college savings account for our newborn

Jan 2011

We have a small chunk of dough languishing in a savings account and a newborn, so we thought now is as good a time as any to start saving for college. We are likely going to invest in a 529 account (state of Illinois looks the best), but here are my questions. - Do you have any experience with a 529 or other college savings, and if so, what is your experience? Is there a better option than a 529 for college? - How much should we aim to save? This is the big one. If we save it all ($120k, at least), they will take it all. Should we aim for half? Or? anon

We struggled with this issue too. How much to save for college? A 529 plan is a great way to save and other relatives can contribute if they want; knowing the money will go to education. We ended up calculating what half the cost going to UC and living on campus was and using that as our savings goal. The rest we'll either have to come up with or they'll have to borrow depending on how things turn out. To get a monthly amount, we used an inflation rate of 8%. But we've had to recalculate the whole thing almost every year because UC tution keeps going up much faster than that. --Parent of Twins

I like the Utah 529 plan (age based). Joe Hurley, CPA, has a great website about college savings at You can also consider a Coverdale Savings account.

I personally believe in saving for retirement over saving for college, if you haven't already addressed your retirement savings plan. There are lots of ways to pay for college (loans, grants, scholarships, going to a junior college for the first 2 yrs and subsequently transfer to a 4 yr college), but I don't think we can or should count on the government to subsidize our retirement. Hope that helps!

Enabling your kids a college education

April 2010

I am curious about peoples experience currently with getting their kids college educations without having enough money to pay full fare for them. I have two kids 7 and 9 and based on college calculators I'd have to save $1500 a month currently to pay their full way thru public state colleges, I can maybe save a quarter of that and don't see it improving for awhile. I have worked and sacrificed hard to provide to provide a great home, excellent school districts and going life. However in doing this I really have neglected saving for colleges. I feel like a failure of a parent for being so naive My kids are not very athletic so I really don't see them getting any sports scholarships. Other than saving as much as I can in 529s and other college saving plans is there anything I should be doing to prep my kids for getting other types of scholarships? IC,bm curious are there certain academic fields (math, English, languages, history?) That kids excel in have a better chance of getting scholarships? Worried father

I like the use of the word ''enabling'' ... lol.

I am an only child and we were BROKE growing up. No one told me, but I clued in to the fact that college would be on ME around my freshman year in high school. My husband was the youngest of 5 kids ... dad was a preacher, mom was a mom. They had the set up that they would pay for the first year, pay half for the second year, a quarter the third year, and nothing the last (hopefully) year.

At this point there are 10 kids in the blended family. Money has never been set aside for the kids to go to college. Our position has been: If you want to go to college, come up with a plan and we'll do our best to help you implement that plan. No four-year beer and pizza party. College is and should be fun. But it is also ''higher learning'' and should be hard work. I understand that a college degree is pretty much a necessity in this day and age, but too many kids have things handed to them. Things that ought to be worked for. The older six (my stepchildren) have been angry and resentful toward us about this way of thinking and the three who have gone to college have essentially gone to their mom and stepdad to cover what financial aid has not. They only heard from one set of parents that college is a privilege and something to be worked for, not handed to you. This has begun being discussed with our 10-year old (not in a pressure way... but he was asking about college recently).

Remember that whatever you have saved will be considered when need- based aid is determined... meaning your kid will get less. not enabling college

I may not be popular with my response, but I don't think it is necessary for parents to stress themselves out saving for their childrens' college funds. In fact, IMO any extra money that you have is probably better off going into your retirement fund - your kids can take out a loan for college, but you can not take out a loan for retirement! My parents paid for the first two years of my college while I paid for the last two years. And while I am still paying off student loans, I discovered that I valued the cost of my education much more when I had to pay for it. I also worked harder, got better grades, and got job experience since I was also working to help pay for school. Student loans are fairly common - certainly, your children won't be the only unathletic kids using them to help pay for school. And, the amount you save may impact their financial aid package. Not to mention, there are many grants and scholarships that have nothing to do with sports. I commend you for wanting to provide an education for your children. And certainly, if you have the money to set aside, it is well worth it, but don't stress too much. Do what you can and be ready to research FA options once they hit high school. not a financial advisor

One of the best things my parents ever did for me was NOT pay for my entire college education up front. Getting loans and working during college taught me almost as much as I learned in the classroom. And later, when I went to grad school and paid for that myself entirely, I worked much harder and did much better because it was 100% MY investment.

I also appreciate that they saved for their retirement and don't need my financial support in these years (unlike some BPN members who are struggling to help parents who were not financially responsible).

You can always help your kids repay loans.

Failed father... really? guidance and concern with their well-being would go a lot farther in helping your kids create a happy and fulfilling life for them. Don't let this get you down, really! Help where you can. There is lots to learn about raising happy adults... and this does not always include paying for their college... lots of discussion out there about kids having a big part of their college funding (responsibility and money management, etc.).

I am a dad of 3 college aged kids... one in a private college, others are taking different paths toward maturity. My kids' mom flaked on chipping in as she promised... so lots of life lessons for all involved. dad of three

I'm a little behind, but I have to chime in with others who urged you to let your kid(s) pay at least a good chunk of their schooling. I was the oldest of four in a working class family and I ended up studying as an undergrad and a grad student in private institutions for more than ten years with about $2,000 support from Mom and Dad for the whole shebang. Scholarships for college and grad school. Some small loans. And LOTS of part-time jobs. Those part-time jobs are some of the best memories of college life: editing, clerical work for academic and administrative departments as well as other colleges, switchboard operator at the YMCA, a tourist information officer, a gal friday for really interesting folks, etc. etc. I lived very close to the bone. I learned about scrimping and saving and about working ethics and getting along with lots of kinds of different people. An education cost less back then, but some things have not changed, and one is that learning to take care of yourself and your own finances is part of growing up. Don't pay it all for your kids! Let them have some of the fun of going it on their own. still working and loving it

My parents did not save for my college; they assumed I would pay for it myself through loans as they had done. Unfortunately, college & college loans in the early 2000s are not the same was what they were back in the 1970s. Not even counting inflation OR interest payments, I'm paying at least 4x for three degrees as what my dad paid for four degrees, and my interest rate is about 3x what his was. My point mainly is that you have NO IDEA what college will cost and what financing (loans or otherwise) will be available in 20 years. It is NOT guaranteed that kids will be able to get loans for college in 20 years, so I applaud your presence of mind to save & hopefully help your kids through their college years.

Personally, my husband and I are saving for our kids' college years in VT's 529 plan. 529 plans were made specifically for kids' college savings, so I'm not planning on using any other sorts of investments in this area. alison

How to Save for Kids' College

March 2010

Hello, Here I am with an 8 and 5 year old and worrying about saving for college already. Am I too late? My husband and I just haven't been able to put anything aside as of yet. At one point, we were looking into 529 plans but they have since gone down in the dumps. I'd love to hear from the BPN community of other ways to save for my children's college. I am not financially savvy in any way. It's hard for us to set aside money but we'll do whatever we can. I appreciate any advice. Thanks! Mama of 2

''Down in the dumps'' is actually the best time to start investing! (the old 'buy low, sell high' mantra). Starting when your kids are 8 & 5 means at least 9 years to appreciate, which is quite likely enough time for the economy & the plans to turn around. My husband and I started a 529 plan for our baby last year, and the funds have appreciated quite a bit since then. Almost half of the value in the account now is simply from the appreciation of the previous contributions. alison

We just set up a 529 account for our son. It's true that a lot of 529 funds did really poorly in the recent economic downturn. Some that were supposed to be quite safe were actually far too aggressive and hurt families with kids approaching college age. That said, they are still an excellent way to save for college because it is completely tax free. You can contribute a very large sum of money each year and most will give you to option of changing the aggressiveness of the funds so that if you have more time until college, they are more aggressive. You can go through any state's program. It turns out that California's 529 fund doesn't actually offer any particular benefits to California residents, unlike some other states. So it makes sense to find the best performing, most appropriate 529 across all the states. We went with the Ohio Advantage because of its low fees and high performance. Check out some (sort of) recent reviews: anon

You mentioned that 529's have gone down. Actually, each company that offers 529s has many investment options, some more safe (even guaranteed) and some more risky. I put my kids' college money in the age adjusted ones that automatically get safer as they get older. And during the past couple years my 18 yr old's didn't lose value and my 14 yr old's did, but not too drastically.

You also said you don't have any extra to invest. I would recommend just setting up an automatic $25 transfer to each account each month. Probably you can spare $50/month. Then once you have the accounts set up and money going in on a regular basis, you can add more from time to time. I don't know if the kids get gifts of money, but I always said they had to put some of it in their college accounts. Also, the company will give you ''deposit slips'' and if you think it is appropriate you can pass those on to relatives if they want to contribute directly. it's great to start saving early!

It's never too late to start saving. Check out for some guidelines and options. We have a 529 plan in our state and can deduct a certain amount from our state taxes. Many, if not most, funds have gone down, but we chose certain stocks for our portfolio instead of going with an age-based portfolio or a risky-conservative fund. Rather than have someone with our portfolio, we decided to do it on our own, which is probably an option for most plans. anon

2007 - 2009 Recommendations

Alaska 529 Plan

March 2009

Has anyone had experience with the 529 Alaska College Savings Plan? Are there penalities for Ca residents? Any advice in starting with one? Saver

We use the Alaska 529 plan -- when we were researching 529 plans about 5 years ago, it offered a good combo of high returns and low costs. I don't know if it's still one of the best, but we've been pleased overall with the plan, although like everything else in the market it's down now. As far as I'm aware there are no penalties for CA residents and you don't have to go to UofA to benefit. They have a good faq on their website ( Saver

When our son was born we explored all the different 529 options so I'm fairly well versed in the general properties offered by the states.

In a nutshell, any resident can enroll in any 529 regardless of the state. I am not aware of any penalties whatsoever. There may be tax benefits for in-state residents however. I can't address Alaska specifically in that regard.

When I did my research, I concluded that two strongest offerings were from California and Utah with the latter having a slight edge with lower overall costs. We stayed with California however because Fidelity offers an Amex card which pays 1.5% into our 529 annually. Rick

Which 529 plan?

Nov 2008

We are thinking of setting up a 529 plan. Does anyone know of a good plan with low fees, and can we set it up ourselves without having to pay an intermediate person? Will this 529 plan reduce our eligibility by much for financial aide?

You don't have to open one through a financial advisor if you'd prefer not to. The Web site is a great source of objective information on the quality of various states' plans--and includes information on which states require that accounts be opened through an advisor and which can be opened directly.

Illinois, Maryland, Virginia, and Colorado are the best according to Morningstar (although some require using a broker).

I don't care for 529 plans in general for a lot of reasons: they reduce financial aid eligibility; if your kid doesn't go to college you'll get taxed on the growth AND penalized another 10%!; you're limited to one mutual fund family; investment choices are limited. And so on.

If fees are your criteria, go for the 529. If performance, flexibility, leverage, and choice are important, get yourself an advisor that knows what they are doing.

After a lot of research and pulled hair, I decided to use life insurance. It sounded crazy to me at first but the numbers work (I'm a mathematician).

1) I need the coverage - I have kids and a wife to protect. 2) It has none of the restrictions of 529 plans. 3) It's flexible - what my kids don't use for college gets added to my retirement. 4) I have no downside risk (wish my 401k had that right now!) 5) It protects my net worth from future estate taxes. And so on.

Pick a firm that has been around for a while (stable) and brokers a lot of different companies (not one company's agent). I use D|A Financial in Lafayette, 925-254-7100.

Best interest rates for college savings accounts?

May 2008

I have a 14 year old son who is definitely college bound. I have been putting away some money for his college but want to know about where I might find the best interest rates now-a-days in the world of CD's and money market accounts. Advice hugely appreciated! Janet

Best CD rates to save for a 14-year old student - great question. Here are a couple resources for answers.

(1) keeps current with many financial products, including CD's. The website is

(2) 529 Plans can be an option. Look at all the states, as you can use anyone you want. Montana used to have the slam dunk of all time, with the College Sure CD out of Princeton New Jersey. In the past, it paid 1% below the average of the rate of inflation for the average costs at 500 private colleges across the country. What a bargain! That ended a couple years ago, and now they are 3% below that rate of inflation. Still, check them out. The benefits of 529 plans are that all the gains can be tax free when cashed, if you have qualifying college expenses. Schools actually send you the right forms, and it all works out.

(3) From the Bob Brinker Fan Club, here is their weekly link to the nation's Best CD Rates

Summarizing, gives the best, head's-up interest rate info around. But for college saving's, always consider a 529 plan with any of the state's, e.g., Montana. Finally, the link from the Bob Brinker fan club is always very good.

Good luck with your 14-yearpold student.


529 plan for high school student?

Nov 2007

A friend's teenage daughter is a junior at BHS. This friend was told by a BHS counselor that it was too late to open a 529 savings plan for her daughter. I'm not sure why she was told this. Can anyone clarify:

1) Purely for tax purposes, since the earnings on a 529 savings plan are tax-free, what is the down-side of beginning one at ANY time before college expenses need to be paid?

2) Regarding financial aid, I was told by a tax accountant a 529 savings plan opened for a child by a parent counted less-adversely against financial aid than, say, a Coverdell (Educational IRA) that is in the student's name, or than ANY assets (such as an UTMA account) in the student's name. But I read this, from a US Securities Exchange website,

''Does investing in a 529 plan impact financial aid eligibility? While each educational institution may treat assets held in a 529 plan differently, investing in a 529 plan will generally reduce a student\x92s eligibility to participate in need-based financial aid. Beginning July 1, 2006, assets held in pre-paid tuition plans and college savings plans will be treated similarly for federal financial aid purposes. Both will be treated as parental assets in the calculation of the expected family contribution toward college costs. Previously, benefits from pre-paid tuition plans were not treated as parental assets and typically reduced need-based financial aid on a dollar for dollar basis, while assets held in college savings plans received more favorable financial aid treatment.''

Can someone clarify this to me?

3) When applying for financial aid, is there a cut-off date after which one cannot transfer assets that would affect family contribution assets that count towards financial aid determination, and what is that date? Thanks. Rick

I looked into 529s because we re-financed our house to pay for college tuition and therefore had a large sum of money to store. Because my daughter was a senior, the plan (Utah's--one of the best according to Morningstar) recommended a low risk portfolio. So our money, ever since, has been making 5-6% tax free. I think that even for five years (we will have two in college at almost the same time) it is worth it. The tax free bond funds out there, which are roughly equivalent, had more fees. Yes to take advantage of stock market growth it is better to start earlier, but the Utah plan had 0 to very low fees, and it seems like a great deal to us. There is a California plan, but when I read up on it I found it conferred no special benefit to California and according to Morningstar and others, the plans Fidelity offers under it are not their best ones, and there are relatively high fees. You really need to think about fees!

We were sorely tempted to put the money in one of the higher risk plans, earning 10-23%, but we are lucky we did not since we would have been investing last spring and the stock market has been so volatile this fall. The plans generally allow you to select specific portfolios or to put the money in ''age based'' plans where risk is lowered the closer the student is to going to college.

There has been speculation that at some point the state will let you submit income to their fund pre-tax (this is the case in some states), but if that ever happened you could simply open an account and start then. Given the state's fiscal crisis, this scenario is unlikely anyway.

In terms of financial aid, it is very difficult for a middle class person to qualify. It seems fair that money that has been saved in a College savings plan should be counted as money to be used for college by a financial aid assessment. Ethically, I think one should not try to fiddle financial aid; Practically, I think college is so expensive now and the system is so rotten to the middle class that I have little problem with it. We never would have made it though! And FAFSA does not count the value of your home. Just our income, upon which we barely get by here in the bay area (old cars, old clothes, no eating out--admittedly, however, not hungry or poor!) was enough to disqualify us. All I can say is that people who do qualify REALLY DO NEED IT and I don't know how they survive around here. As a taxpayer, I guess it is good to know that I am subsidizing people who are in need, but in fact I would be happy to give more of my taxes to the University of California so that fees could be more reasonable for all of us. been there

In regards to your third question about cut-off dates and transferring assets: It would be helpful to read last week's SF Chronicle's articles about the kiddie tax, which emphasize the point that once assets are given to a child, they belong to the child and parents cannot legally move a child's assets back to the parent.

After Jan 1 of the child's senior year (Jan 1, 2008 for a current senior), on the FAFSA you report the current value of parents' and child's assets and also the income for the previous (2007) calendar year. In April, most private schools also require you to send them a copy of the completed (2007) income tax form for parent and child. Public schools request this information from a random selection of students. A few private schools also require copies of tax forms for the year prior to that (2006 calendar year). In addition, the PROFILE form used by private colleges asks many more questions including amount of equity you have in your house, cost of your cars, etc. Anonymous

Put inheritance into college fund?

Oct 2007

A family member recently passed away and we've learned that this generous individual left us some money, perhaps on the order of $80K. We are woefully behind on saving for college, so I see this as a great opportunity to leap ahead in that department as our first child starts college in about five years (and we are bracing ourselves for an Ivy League school) followed two years later by our no doubt equally expensive second child. So I'd greatly appreciate advice on how best to invest these funds, both securely and at a relatively high interest, so that we might add to them as much as possible in this short time frame. I seem to recall there are a number of special vehicles for college savings but don't know any of the details or how to differentiate among the various programs. Any advice or expertise would be welcome. Many thanks. Starting late but thinking ahead

For all you who find saving for college so confusing you don't do it, there is NO EXCUSE. Get a good 529 plan with LOW FEES. The Utah State plan is one of the best. Morningstar has a list of the five best, and the California plan is NOT ON IT. So don't use it -- there is no problem with using another state's plan and no penalty. We use the Utah one, and you can use their ''age based'' formula that reduces risk as the kid gets closer to college. All you need to know is the age of the kid and you are SET.

California's plan, through Fidelity, has age-based options but according to Morningstar they are not particularly good funds and the fees are high. So review Morningstar and have at it. It is very easy and you will feel great about it. The 529s just protect the savings from taxes. If it turns out you can never use the money for higher education of a family member, you just pay the taxes you would normally owe. You can get the info you need and sign up on the web. Saved some Funds

Don't try to get 'high interest' or risk the money in the stock market. Vanguard has a prime money market account that pays about 5%. You can write checks (minimum of $250.00) with this account, too. Since the first college costs are only 5 years away, I would keep the money as safe as possible. Vanguard's number is 800-662-2739. Mom w/son in college

For information on Section 529 college savings plans, visit ally

There are basically two tax advantaged vehicles that you can use to save for college - 529 plans and Coverdell Education Savings Accounts. Given the amount of money you are talking about, I would recommend a 529 plan since you can participate at any level of income and there are generous caps on how much you can contribute.

Unfortunately, your desire to invest the funds ''both securely and at a relatively high interest'' are somewhat in conflict. With all investing, you need to take on additional risk in order to achieve greater rewards. That being said, given that your timeframe is only 5 years for your elder child, I would suggest you err towards being more conservative than being overly aggressive. It's better to get a little bit of tax- deferred/tax-free earning than to risk losing a chunk of that $80k over the next few years. By the way, my estimate is that you'll need about $220-$240k to put your eldest child through an Ivy League school 5 years from now. So, inevitably, you're going to need to plan to get loans or to liquidate other assets in order to fully fund both of your kids' education.

As far as 529 plans go, if you plan on ''doing it yourself'', there are many to choose amongst. I would recommend you consider Utah, Nevada, Illinois, New York, Iowa, maybe a couple others. You can do some research at

Alternatively, you could consult a financial advisor like myself (shameless plug), but of course, that will cost you something in fees in order to receive the benefits of service, expertise, and time saved not having to do the research yourself.

I've written an article about saving for college that I'd be happy to send you (or anyone else on BPN). Just go ahead and email me. Happy to answer any other questions you might have as well. Good Luck! John

Gift from grandparents - 529 or other some fund?

May 2007

My parents have generously offered to gift some money towards our children's college funds. We are struggling and it seems clear we will not be able to afford to pay for our children's college without financial aid. I have been told that the problem with 529 plans is that they usually disqualify you from receiving financial aid, but that there are certain kinds of funds, trust funds, grandparent trusts that make it possible for there to be some funds for college and to still qualify for financial aid. Does anyone know anything about this? I have also been told that it is important that the childs social security number not be connected with the account. I would appreciate any direction. Thank you anonymous

I had the same concerns until I found this website. Now I have decided that the 529 Plan will be the best option for our family. Impact on Need-Based Financial Aid Eligibility
The need-based financial aid treatment of family assets depends on whether they are owned by the student or the parent. During need analysis, the federal financial aid formula assesses a percentage of student assets and a percentage of parents assets. Student assets are assessed at a flat rate of 20% (effective July 1, 2007). Parent assets are assessed on a bracketed scale with a maximum rate of 5.64%. Parent assets are also partially sheltered by an asset protection allowance based on the age of the older parent (around $45,000 for most parents of college-age children). Parent assets in retirement plans and the net market value of the family's primary residence are also sheltered, as well as small businesses owned and controlled by the family. Accordingly, the impact of a college savings plan on need-based financial aid depends on whether the plan is considered a student asset, a parent asset, or neither. A separate section discusses account ownership for each type of college savings vehicle and its impact on financial aid eligibility. The following summarizes the impact of section 529 plans on financial aid eligibility: * Section 529 college savings plans are treated as an asset of the account owner, and so have a low impact on financial aid eligibility. College savings plans are reported on the Free Application for Federal Student Aid (FAFSA) as an asset of the account owner, which is typically the parent. Distributions from a college savings plan have no impact on financial aid eligibility (i.e., they are not counted as untaxed income or a resource). * Section 529 prepaid tuition plans are now treated as an asset and are reported on the FAFSA, just like section 529 college savings plans. The asset value is the refund value of the plan. Distributions have no impact on financial aid eligibility. This change went into effect July 1, 2006. (Previously they were treated as a resource, which reduced need-based financial aid 100%.)
Hope this information was helpful ANON

Need a 529 Plan and low maintenance company

March 2007

Looking for a low maintenance fee 529 Plan? victoria

We had the New Hampshire (or was it Delaware) 529 Plan through Fidelity. However, Fidelity now offers a California 529 so I switched over. Much depends on how proactive you are. For sure you want low expenses. Fidelity or Vanguard (the low expense leader) are reputable. What's most important is to start now. Good luck. Anon.

529 plans - does it matter which one?

March 2007

I am about to start a 529 college savings plan for my child. Two different financial planners have suggested two different plans (D.C. - because it uses calvert which is more socially responsible and Utah). California has a new plan that is also suppose to be socially responsible. Can anyone tell me how much difference it will make which plan I use and do I need to sign up through a financial planner or can I just do it myself? hope my child goes to college

There is a huge difference between some of the 529 plans. Some offer socially responsible funds as a portion of their investment vehicles. The things to be most focused on though, for 529 plans is flexibility and fees. Though there are some advantages of the CA plan for CA residents I don't recommend CA plans for several reasons. I do recommend the Virginia 529 plan, otherwise known as The Virginia Education Savings Trust. They have reasonable fees, they are rated #1 in their category by Morningstar, they have the most investment options (currently 18), some of their investments are very high yielding, they have no age limitations, they have no income phase outs, and their costs are quite low. You can open an account online, don't need a broker, and they are super friendly if you need to call for help. I also agree that the Utah 529 plan is a good option. I would recommend it because it's fees are among the lowest. However, I'm not satisfied with the investment choices and would like to see more options and more high yielding options. (accounting for fees and inflation can eat up a significant % of profits) But if my client wanted to open a Utah plan I would give a thumbs up. If you'd like to discuss this further, I'm a financial advisor and I have been recommended several times on Berkeley Parents Network. But you don't need me to open a 529 plan. I make recommendations, I dont sell them. Good luck, Brandi B

2004 - 2006 Recommendations

IRA or 529?

Sept 2006

My husband contributes regularly to his 401K and I have a profit-sharing plan through my employer but neither of us has made any IRA contributions in the past several years. We make small but regular monthly contributions to a 529 for our kids but there's no way it's going to keep up with rising college costs. Since we don't have enough disposable income to save towards everything, where should we put the small amount we have, knowing that no matter what, it's not as much as the experts say we'll need? -getting a headache just thinking about the future

It's easy to get a loan for college, very very difficult to get a loan for your retirement. It's unpleasant to think about saddling our kids with college loans, but I would rather saddle mine with that than with a cash-strapped aging parent. Go for the IRA

All the experts say save for your retirement first. Once you are saving to have enough for your retirement, then you can save for college. There are many ways to pay for college when your kids get there: financial aid, scholarships, work-study, low- interest student loans to the parents or the kids. There are no ways to save for retirement once you get there. So, first secure retirement, then work on college. good luck

Save for your retirement. Your kids can always get scholarships, student loans or work while in school. There really aren't any 'loans' available to help you get through retirement. Also, chances are pretty good that you don't want to have your children supporting you while they are trying to raise families of their own while also trying to save for school and retirement.

Our annual plan is to max out my husbands 401(k) and IRAs for both of us (I am a stay-at-home mom). We save a token amount each month for the kids ($200/per kid) during the beginning of the year. After we've maxed out on our Social Security tax for the year (somewhere in the $90,000 range) then we put what we would be paying in SS taxes into the girls 529s every month. When we max out my husbands 401(k), then we keep the 'payments' going into a rainy day fund. We don't 'miss' the money, because we have already been paying it out every month. It isn't a HUGE amount, but it does help -anon

Best way to put money away for baby?

June 2005

Any advice on the best way to put money away for my baby now, so that it will grow as much as possible by the time she is 18? future-thinking mom

You should research the 529 plans available, which are a very good deal for college savings. Go to for articles that describe these kinds of plans, and also comparisons on how to find the right one for your needs. Also Saving

You might want to check out Suze Orman's web site and search for this topic. She wrote an interesting article just a few months back saying investing in a college fund is the last thing most parents should do. Her reasoning was that you need to better plan for your own retirement, pay off credit card debt, buy a house, and save six month's wages for emergencies before you even think about saving for a kid's college. For instance, there are many, many low-interest college loans for students and parents, but where have you ever seen a low-interest retirement loan? This article really helped placate the in-laws nagging about opening a 529 college savings plan. Working toward financial security but no longer feeling gulilty about college savings

There are many ways to save for college, and each has advantages and disadvantages. A 529 plan genarally has the greatest growth potential because of the tax treatment, but if the money is not used for college, there are penalties, so you need to be fairly sure the child will go to college. You should probably see a professional, to have them explain the differences in funding options, so you choose the right one for you. Jarrett Topel in Oakland set up our 529 plan after we went to a seminar he gave at the library. His number is (510)655-4400, and he is very knowledgeable about college funding options. Good luck. tracy

We just set up a 529 college fund account for our 17 month old daughter. visit for more information. It's the California 529 program, and you can choose to invest in a socially responsible mutual fund if you want, and I think there are also higher and lower risk funds to choose from. We've set it up to do automatic deposits every month from our bank account. Good luck! Gal

Hi future thinking mom, I am a financial planner focusing on retirement planning and college savings (as well as a mother of 2 young girls). There are many ways to save for college, 529 plan is one of them. Different savings plans have pros and cons and determining the right plan really depends on your unique situation. I'd be happy to talk more with you about your situation and give you some advice. Thanks Tammy

Rather than giving you specific suggestions for investments, I'd like to recommend an excellent book that I just read on this topic. It's called ''The Standard and Poor's Guide to Saving and Investing for College'' by David J. Braverman. As this book explains, your investment choices will depend on a lot of factors, some of them specific to you. As a general rule of thumb, investments with higher average returns also have greater risk (i.e. a higher chance of losing some of the money you invest) -- so one factor in choosing an investment is how comfortable you are with risk -- two different people with the same amount of money to invest over the same time period may make different choices for this reason.

There are also advantages and disadvantages to saving under your name vs. your child's name, and to saving in a tax advantaged account like a 529 plan or Coverdell account, vs. saving in a fully-taxed account. Again, which of these is best for you depends on specifics of your own personal financial situation. I therefore recommend reading the book and then going from there.

After reading the book, I concluded that the best choice for my own financial situation and level of risk tolerance was to start saving money in a taxable account in my own name. I started an automatic savings plan with a highly rated mutual fund. BTW, most mutual funds will waive their minimum investment if you set up an automatic monthly investment -- for example, the one I chose normally requires a $1000 initial investment, but they waive that if you automatically deposit at least $50/month.

Good luck! Diane

We've got a California Golden State Scholarshare plan. Fees are low, managed by TIAA-CREF. Their website is Believe right now they have an online enrollment offer where you get a $50 Target gift card for opening an account with $100. Not a bad deal... satisfied customer

529 savings plans and taxes

April 2004

hello! i am looking into getting a 529 savings plan for my baby. Is it better to get a plan in the state the child will go to school? (which seems hard to determine) His grandparents/ uncle have a couple of different 529 plans started- is consolidation better or having multiple plans ok? Does having a 529 plan affect getting scholarships/financial aid? Any 529 plans you can recommend? Also does a 529 plan lower one's adjust gross income like a Traditional IRA? thanks. seeking so many answers

Regarding education savings for your child, I would first ask if a 529 plan is right for you. Would a Coverdell be better? Or not putting funds in an education account at all (remeber those fees if the child does not go)? If you have decided on a 529, then my first choice would be the plan offered by your state if you are allowed to deduct contributions (like the traditional IRA). Many offer the first $2,000 to be deducted. If your state does not allow the deduction (and even if it does), check around for the fees you will be paying. 529 plans are ripe for high fees so check them as well and know what you will be paying. I would not consolidate since others may be taking advantage of the deduction. Regarding aid, 529s are considered a parent's asset so under FAFSA will not really affect aid, but Coverdell's are student's assets so will affect much more. However, many private schools look at the total picture regardless of who owns what so ultimately a high 529 balance may affect. good sites to compare plans: I run Oregon's Investor Information Program. California has one (look for Dept of Corporations Securities Regulation Division). Vincent

Good for you for thinking of your 529 so early in your child's life! You can choose from any 529 plan based in any state (CA residents receive no state tax benefits for choosing a CA-based plan, though you do get Federal tax benefits similar to investing in an IRA, as you mentioned; your child can go to school in any state). No need to consolidate plans with those set up by your relatives, unless that's more convenient for you to manage.

We set up a plan with American Funds, since we have been very happy with our other investments with this organization, and receive lower sales charges when our total investments exceed certain break points. Plus we find it's just convenient to have as many assets as possible managed by the same company. You can choose from a wide variety of fund options--we chose the higher- growth/higher-risk New World Fund since our kids are young like yours, but will balance this with more conservative funds as the kids approach school age--if you are concerned about diversification. Good luck! mom who has done lots of 529 research

I know that the largest tax advantage relates to putting money into a 529 over an UGTMA; the UGTMA, however--while subject to varying taxation, the first whatever is taxed at whatever, etc., scenari--allows one to legislate in what monies one is invested. We have found that while our 529 (with USAA--one of the more protected and successful 529s; you have to be a member of USAA to qualify, however) has made admirable progress, our greatest percentage gain has been with an UGTMA--26% vs 10%, so when all is said and done the profits for both accounts might be the same. So, to be protective, we have monies in both kinds of accounts, which seems to be the conventional wisdom of the accountants and estate planner to whom we spoke. Also, an UGTMA does not mandate that monies only be for education, a good alternative in case your child should want to open a restaurant, invest in a garage, etc. The 529 monies must go toward tuition and school-related expenses.

I am not aware, however, that the state in which the 529 is dictates that the student go to school in that respective state--that would be restrictive and unknowable, no?

Finally, also know that while there is a limit (110k) on that which you can put in a 529, direct checks to the respective educational institution are allowed with no ceiling and is not impacted by what you/your family receives as legal disbursements (11k/yearly or 55k, given in one single year but not to be given again until after 5 years) from parents/grandparents/family.

Good luck. Anon

Check out or for information on 529 plans. Money Magazine also has information. The savingforcollege site has some good FAQ's that answer your questions on affecting financial aid.

Unless you live in a state that offers tax breaks for contributing to a 529 (and California doesn't), it really doesn't matter which state's plan you use. In such case, low fees and investment choices are important things to consider. Utah and Nevada's plans are among the best in terms of low fees and reasonable investment choices. They consistently show up on ''best'' lists.

Also, check out Coverdale plans (the former Education IRA). Depending on your situation, a 529 plan may be better than a Coverdale, or vice-versa. Bob

Looking at 529's for baby's college

March 2004

hello! i am looking into getting a 529 savings plan for my baby. Is it better to get a plan in the state the child will go to school? (which seems hard to determine) His grandparents/ uncle have a couple of different 529 plans started- is consolidation better or having multiple plans ok? Does having a 529 plan affect getting scholarships/financial aid? Any 529 plans you can recommend? Also does a 529 plan lower one's adjust gross income like a Traditional IRA? thanks. seeking so many answers

Regarding education savings for your child, I would first ask if a 529 plan is right for you. Would a Coverdell be better? Or not putting funds in an education account at all (remeber those fees if the child does not go)?

If you have decided on a 529, then my first choice would be the plan offered by your state if you are allowed to deduct contributions (like the traditional IRA). Many offer the first $2,000 to be deducted. If your state does not allow the deduction (and even if it does), check around for the fees you will be paying. 529 plans are ripe for high fees so check them as well and know what you will be paying. I would not consolidate since others may be taking advantage of the deduction. Regarding aid, 529s are considered a parent's asset so under FAFSA will not really affect aid, but Coverdell's are student's assets so will affect much more. However, many private schools look at the total picture regardless of who owns what so ultimately a high 529 balance may affect.
good sites to compare plans:
I run Oregon's Investor Information Program. California has one (look for Dept of Corporations Securities Regulation Division). Vincent Galindo pvgdad at

Good for you for thinking of your 529 so early in your child's life! You can choose from any 529 plan based in any state (CA residents receive no state tax benefits for choosing a CA-based plan, though you do get Federal tax benefits similar to investing in an IRA, as you mentioned; your child can go to school in any state). No need to consolidate plans with those set up by your relatives, unless that's more convenient for you to manage.

We set up a plan with American Funds, since we have been very happy with our other investments with this organization, and receive lower sales charges when our total investments exceed certain break points. Plus we find it's just convenient to have as many assets as possible managed by the same company. You can choose from a wide variety of fund options--we chose the higher- growth/higher-risk New World Fund since our kids are young like yours, but will balance this with more conservative funds as the kids approach school age--if you are concerned about diversification. Good luck!

mom who has done lots of 529 research

I know that the largest tax advantage relates to putting money into a 529 over an UGTMA; the UGTMA, however--while subject to varying taxation, the first whatever is taxed at whatever, etc., scenari--allows one to legislate in what monies one is invested. We have found that while our 529 (with USAA--one of the more protected and successful 529s; you have to be a member of USAA to qualify, however) has made admirable progress, our greatest percentage gain has been with an UGTMA--26% vs 10%, so when all is said and done the profits for both accounts might be the same. So, to be protective, we have monies in both kinds of accounts, which seems to be the conventional wisdom of the accountants and estate planner to whom we spoke. Also, an UGTMA does not mandate that monies only be for education, a good alternative in case your child should want to open a restaurant, invest in a garage, etc. The 529 monies must go toward tuition and school-related expenses.

I am not aware, however, that the state in which the 529 is dictates that the student go to school in that respective state--that would be restrictive and unknowable, no?

Finally, also know that while there is a limit (110k) on that which you can put in a 529, direct checks to the respective educational institution are allowed with no ceiling and is not impacted by what you/your family receives as legal disbursements (11k/yearly or 55k, given in one single year but not to be given again until after 5 years) from parents/grandparents/family.

Good luck. Anon

Check out or for information on 529 plans. Money Magazine also has information. The savingforcollege site has some good FAQ's that answer your questions on affecting financial aid.

Unless you live in a state that offers tax breaks for contributing to a 529 (and California doesn't), it really doesn't matter which state's plan you use. In such case, low fees and investment choices are important things to consider. Utah and Nevada's plans are among the best in terms of low fees and reasonable investment choices. They consistently show up on ''best'' lists.

Also, check out Coverdale plans (the former Education IRA). Depending on your situation, a 529 plan may be better than a Coverdale, or vice-versa. Bob

2003 & Earlier

How to choose the best 529 plan?

May 2003

With so many 529 plans available, I would like to see what are the suggestions for choosing the best one (by state, by managing company, ...?). Thanks.

Regarding the *start* of your 529 plan search, I would reco This will give you so many tools to compare plans. I would then (or maybe start by) checking to see if a 529 is the most appropriate vehicle for you (many times a Coverdell or even a non-education account is best for saving for school). There are many things to consider (financial aid, flexible funds, if for college or k-12). If you would like to ask more direct questions, I can answer them. Vincent Galindo (financial advisor)

We investigated 529 plans extensively before finally settling on California's plan, Golden State Scholarshare ( We used the website, which allows you to compare all the various plans using a bunch of variables like fees and expenses, investment strategies, age limitations, etc. We narrowed our choices to about ten plans based on inforamtion from this website, then checked the individual plan websites for the most up-to-date information. Ultimately we picked California's plan because its fees were among the lowest in the country (not the very lowest, but close), it offered the most investment options (including a socially responsible option, which most other states don't offer), and it is quite large (having lots of members apparently gives the plan some bargaining power when negotiating the interest rate for the guaranteed income investment option, according to someone I spoke with at TIAA- CREF, the management company). Kathryn

Sorry to jump in so late on this -- like a couple of other people who answered your question, I researched at the site too, and decided (last fall) to open a 529 plan with the California plan managed by TIAA-CREF (aka ''California Scholarshare'') for my daughter (who is now 20 months old). I was feeling pretty confident having read the responses to your post, smiling to myself because it was basically confirmation that I had made the right decision (it was a lot to wade through!).

However, I've recently been having an email dialogue about this with one of my husband's collegues and he pointed out the following sort of alarming fact:

''At the present time, distributions [from California Scholarshare accounts] taken out after year 2010 will be subject to State Tax. That means if I choose CA's 529 plan, I'll have to pay State Tax on withdrawals after 2010. But if I were to choose an out of state plan, I wouldn't have to pay any State Tax as long as we don't become a resident of that state in the future.''

I didn't know this -- and will research it further and write my Assemblyman about it...the guy who pointed it out is pretty meticulous and methodical about his research, so I don't doubt it's true.

Also, my friend says that higher fees or not, the Fidelity-managed plan(s) (in other states--I don't know which) are doing better than average on the equity invested funds than the TIAA-CREF funds. He says you can see this at (Click on column ''% of Funds with 4 or 5 Stars'')

Sorry to give you more to chew on -- it's a long process and I know you just want to start SAVING so it's taken care of! writing my Assemblyman

Just the other day, the Brookings Institution had an op-ed, (''Saving for College? It will Cost You'') about 529 plans across many states.


It points out an often overlooked part of the plan -- fees that many investment companies charge for setting up and maintaining 529 accounts, along with other features and pros and cons of the plan. Good luck. Chris

This is a correction to someone's posting that appeared in May 14 issue. Two statements posted there were not true statements. The posting said:

''After 2010, we will have to pay taxes on any distribution from a 529 plan.''

If the current tax provision does not get extended or made permanent by 2010, any distribution from a 529 plan will be taxed to a child at the child's rate, NOT to a parent.

The posting also said:

''If we take a distribution from a plan belonging to a state other than California, we will not have to pay California tax on it.''

As long as you are a California resident in the year you take that distribution, California will tax you on your WORLDWIDE income, as it taxes all of its residents. Maria U. Ku, C.P.A.

I sincerely apologize if this is redundant, but I wanted to add my two cents on 529 plans after reading about withdrawals being subject to *state* tax after 2010. The reality is that withdrawals will be subject to federal tax afte 2010 also, as it currently stands. To quote a financial website on this issue: Qualified withdrawals are federal income tax-free. The provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 will expire on December 31, 2010. Unless the law is extended by Congress and the President, the federal tax treatment of 529 Plans will revert to its status prior to January 1, 2002.

So if this law is NOT extended, all withdrawals would be taxable, by federal and state, I imagine. Its a bit of a gamble. Although, as I understand it, the funds can be withdrawn for any qualified education expenses, so perhaps that also means private high school which many of our children might be going to in the years preceding 2010. Someone correct me if I'm wrong on this. jaredjo

Can anyone recommend s specific 529 plan?

May 2003

Hi-- I am seeking adivce on 529 Plans. I know there have been significant changes to most plans lately. Can anyone recommend a specific plan they have set-up and/or let me know how to go about selecting the best one? Thanks. Sondra

I'm a local financial advisor who works with many families with young children. For people interested in 529 plans, I like the Iowa and Utah offerings, but I also advise clients to be aware of the limitations inherent in 529 plans. Send an e-mail to nickl at or call 510-601-6662 if you'd like to discuss these ideas in more detail. Nick Levinson

The array of 529 choices is mind boggling

Feb 2003

Our accountant has suggested we open a 529 plan for our daughter who is two. The array of choices is mind boggling. Recommendations from anyone who has already sifted through the choices will be much appreciated. Thanks, Anon

It is very daunting--50 states, most open to non-residents, many states have multiple plans and all the plans have multiple investment options! Start researching at I spent hours last summer and ended up with the state of CA plan. Within that plan I chose the guaranteed interest option--I think it's a minimum of 3% now. When the economy improves I'll switch to one of their riskier/potentially higher interest options. Deborah

I went with the CollegeAmerica Plans (link at bottom) They are an offering from the American Funds family of mutual funds, which is affiliated with The Capital Group. They are considered the best run asset manager in the business. They have 600 billion in assets altogether, they've been doing it since 1931, they have the most intense research team of any competitor, they have a range of purchase plans, and their load or administration costs are among the lowest. Check 'em out... We started with a lump sum and will build it with a monthly automatic payment. Studies have shown that no one can time the market and that the way to build wealth is to keep adding money monthly. Evan

We just went through this. After a lot of research and speaking with a few investment advisers, we selected California's 529(c) program. The consensus seems to be that because California now allows the money to grow free of state income tax, it is worth it (for California residents) to invest through the California plan. Although we are pretty conservative investors, our child is only 16 months old, so we chose the age-based asset allocation plan. Good luck! Jen

We have a 529 plan for our 16-month old, and I have to say I feel a bit duped. It's one of the best-performing plans (over the long term) out there: The American Fund's College America Plan, but we've still seen a pretty significant drop over the past year. My advice would be to proceed with extreme caution: our financial advisor recommended this plan, but in the end I wonder if the conventional wisdom (you need a college-savings fund based in mutual funds and other risk-bearing investments) may be a bit faulty in this economy. We're definitely feeling like it makes more sense to keep our money in a no-risk form like an insured money market until we see what happens with the possible war on Iraq (please, God, no!), and other dire things in the financial environment. I'm no expert, but my own experience with the 529 has left me feeling, well, burned. Anonymous

I hope I am not adding to your confusion on choices for the 529 (and I realize that this may not be exactly what you asked for), but here goes. There are two great education investments available to you. One is the 529 and the other is the Coverdell Education Savings Account (formerly the Education IRA). Both investments grow tax-deferred and are free of taxes when distributions are made for qualified education expenses. Note that the tax-free nature of 529 plans is set to expire in 2010 unless extended by Congress. The 529 is used for schools after high school (post secondary), while the Coverdell can be used for college as well as private schools (K-12). The contribution limit on the Coverdell is $2,000 per year, while the 529 has no annual limits (The 529 account limit is capped at $187,000). Lastly, only the Coverdell has income limitations (If you are married filing jointly and make less than $220,000 or if you are single and make less than $110,000 you can contribute to a Coverdell).

Some questions many people ask when it comes to saving for education are:

What if my child does not decide to go to college? You can change the beneficiary to another member of the family, you can take a withdrawal and pay the taxes and penalties or you can do nothing and simply leave the money in the account to grow tax-free.

What if my child gets a scholarship? You can take a withdrawal equal to the amount without paying taxes or penalties (With the Coverdell, you would have to pay taxes if your child received a scholarship).

Who can start a 529 or Coverdell account? Anyone can open and/or contribute to an account for a grandchild, niece, friend, or themselves. For financial aid purposes, who owns the money? With the 529, they are considered the asset of parents while the child/student owns the Coverdell.

I know this is a ton of info and I hope it helped. If you have any other questions, let me know. Vincent

A new 529 plan is on the horizon and may be of interest to some: a week or so ago the Wall Street Journal ran an article about a new ''Independent 529 Plan.'' Beginning approximately July 1, TIAA-CREF will begin managing a plan for 300 universities (Ivy League and regional schools). If the child doesn't attend one of the schools, the funds can be rolled over to a different 529, refunded (with some penalty), or transferred to another family member. The list of schools should be released in April or May, so I imagine more news will be forthcoming. Ellen

Starting a college fund for one-year-old

October 2001

My son is a little over one and we're finally getting around to starting a college fund for him. We don't have a lot of money to start with about $2,000 - $2,500. Does anyone have any recommendations? Thanks!

529 Accounts are great because your money grows tax free. Below is an excerpt from the following web site: Note from Myriam: See the link for more information. Helena

Try the State of California's college savings plan, The Golden State Scholarshare. Their website is Lena

We just opened up a college fund for our son with ScholarShare. It's a new-ish kind of fund set up by the state of California, and is in many ways like a mutual fund, but with specific tax advantages (and some snags, too) geared toward saving for a child's education. The website is, and you might find it worth checking out. Wendy

Depending on your income level, you might want to check out a 529 plan as a good savings plan for college. There are many advantages as well as disadvantages, so it depends on your financial situation. Different states offer different plans, but all can be used at the college of your choice. They all differ slightly in their investment strategy (aggressive vs. conservative and so on). One of the factors we took into account was the administrative cost of the fund, however there are lots of considerations. Here is an article I found quite interesting. You might want to do a search on Google or one of the other search engines to learn more. Best of luck! CWilson95