Thursday, January 24, 2008

5 2 9er

This post on Ask Moxie today inspired me to write about the college savings plan we started for Lucas.

I'll be frank: I'm pretty proud of us, er, of it.

When I started looking at colleges in high school, I vividly remember getting really angry with my parents when I learned that they hadn't saved a dime for my college education. It seemed like all my friends' parents had at least some money put away. One day either my Mom or Dad--can't remember which one--basically told me to get over it. They had made the choice that Mom would stay home while we were young, and that was a big financial sacrifice. Therefore there simply wasn't any money to save.

Okay. I got it. That made sense.

Now, don't get me wrong, my parents helped a great deal with college--they're still paying off the loans they took out for my education, for which I am truly grateful. And I'm still paying off loans, too.

Abel was the first person in his family to graduate from college. His parents weren't able to save money for him either. Honestly, I don't know if the thought would have crossed their minds. I'm sure they helped wherever they could, but he's got loans, too.

Those loans are the one bill I don't mind paying each month. We both had great experiences at college that helped us get where we are today. (Though I do have a more-than-sneaking suspicion that much of Abel's loan money paid for beer...I mean how does an in-state resident go to a state college and come out with more loans than someone who goes to a small private school? But, I digress.)

For Lucas's first birthday we started a 529 college savings account for him. We seeded it with a few hundred dollars and now we put in $50 every month (automatically deducted so I don't even have to think about it and for that they even waive the plan fee). I certainly have no illusion that what we save will come close to paying all his college expenses, but it does mean a lot to me that we'll have something to get him started.

We (read: I) did some research, not extensive, but enough to make me feel confident in my decision, and decided to invest in our own state's Maryland College Investment Plan managed by T. Rowe Price, which has consistently been voted one of the best 529 plans in the country.

By going with the Maryland plan we can take advantage of the tax benefits. First, all earnings are tax-free when used toward college expenses (I believe this is pretty standard). Second, we can deduct contributions of up to $2,500 from our MD State Income Taxes.

We chose the enrollment-based portfolio for Lucas. As he gets older the balance of the investments gradually moves to a less-risky balance of investments. Here's an illustration:

They just automatically shift it every year. I just set it and forget it!

Now obviously like most parents we assume Lucas is brilliant and is--of course--going to get a full ride somewhere.

No problem! The savings in this account can be shifted to almost anyone--a sibling, a parent, a cousin.... And if everyone gets a full ride (ha! ha!) it can be used toward books, fees, anything else educationally-related.

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