Oregon 529 plan and funding college

What are you doing to save for your kids college expenses?

I’m staring down the barrel of college tuition.  My oldest turned 11 this month so the countdown continues.  We have about 7 years to prepare.  Its time to look at how we’re saving for her and the 3 kids that come after her!

We have a 529 plan open for each of our children.  I started a plan the day  each kid was born.  (Except the oldest, she was born in New York and I wasn’t sure at that time, but she’s caught up).  They’re all in the same fund: The US Equity Index Portfolio.  Its supposed to just mirror the stock market.  This has the lowest cost (0.29% annual ) compared to the others and will probably perform the best.  As we get closer to the timeframe (3 years) then I’ll probably put more money in the money market account.  All the other non indexed accounts are garbage.  Mutual funds fail to beat the index funds over the long haul.  That’s just common sense.

529 plans are great because disbursements are not taxed.  It’s a lot like a Roth IRA.  The money you put in will have been taxed, but it grows tax free and you can take it out without penalty for education related expenses.  You can put in up to $14,000 per beneficiary without having to worry about gift taxes.  The beneficiary can be changed once a year.  So if one child decides not to go to college then the money can be used for another child.  In addition you can spend the money on computer related expenses even if they don’t go to college.

In Oregon you can deduct a maximum of $4,530 at tax time for your contributions if you are married and filing jointly.  If you live in California, you don’t get any deductions from your state tax because California doesn’t care about the future of their children and would rather see their residents go into deeper debt.  This guy chose the State of UT’s plan instead because they offer lower fees.  If you live in the state of Washington then you don’t have state income taxes so this isn’t going to help you come tax time.

Since the beginning we had ours set on automatic.  We contributed $60 per kid per month.  Not enough to fund the whole bill.  But we had other goals with money just as you did.  We were focused on paying off our mortgage.  Now that that is accomplished we can start saving better for our children.

Even though it was only $60 every month, it is surprising to see how much this has grown for each kid during the last 8 years.  To get the maximum tax deduction we should be contributing double that to get it to $4,530 per year.  I’ll be stepping this number up per month for the older ones.  I know a few people that do around $200 a month.  I think the key is to just do something.  Even if you only do $25 automatically every month (the minimum), that adds up.  Even without interest or compounding $25 a month is $5,400 after 18 years.  You could even end up with double or triple that amount if the stock market goes in your favor.  And the hope is that as you get older your income will improve.

Even if you don’t have kids, contributing to a nephew or nieces fund is a great idea.  Or, you could even save for yourself!  Maybe after retirement you’ll want to take a few community college classes, or just get a new computer to learn things. This plan can help you.

I paid my way through college and my kids should too

Yeah, I hear that sometimes.  And I was one of those people who paid for college by myself with no help from my parents.  (Other than a place to eat and sleep while going to community college).  But times are different.  I don’t want my kids to graduate with any college debt.  So any help I can give I will.

Having said that:  I will not be going into debt to fund my children’s education.  They can do that.  We will try to do whatever we can to prepare, but college is the responsibility of our own kids.  They will be old enough to make their own decisions.  We will tell them:  Look, we have this much saved for you.  Make good choices, we know you’ll do great.

What are your goals your children’s education future? How are you planning today to meet those goals?