As a mom who opened 529 plans for my kids, I want to share what a few other moms are saying about 529 plans. I love hearing real people and moms share their experience with 529 plans to give you some honest feedback. This is the mom’s version of a product review I wish I could easily find on each state’s 529 plans website. So instead, of waiting for this service, I’ve reached out to two of my finance moms who have 529 plans for their kids. Here are the top things that moms are saying about 529 plans.
What do Moms like vs dislike about 529 plans?
To start off, I would like to share the top 3 things I like about 529 plans. Since I just started funding my kids 529 plans, I personally haven’t hit too many roadblocks. But I do have some great tips to share and what I do like about them as of right now.
- I like the opportunity to offer my kids help with their educational expenses, no matter if it’s college tuition or tutoring. This is a way for my family to prioritize education and put our dollars where our mouths are.
- I love how simple it is to add money, pick investments, and have family members gift money towards our kid’s education.
- It’s all about saving and investing with a purpose for me. I know that the funds are specifically for education expenses and that helps me stay motivated to continue investing in.
Meet the 529 Moms
I want to introduce you to Aunt Kara from AuntKara.com and the #debtfreecommunity on Instagram. Aunt Kara shares what she likes and dislikes about 529 plans, plus other gems throughout this blog. The first thing she loves about 529 plans is how the contributions can grow tax-free, which is a great benefit. Two, she likes that you can change beneficiaries if you need to. A beneficiary is who will receive the benefit of the funds being invested or saved. This could be your children, another family member, or even someone else you know. Thirdly, that there are multiple investment options within a 529 plan. When it comes to what Aunt Kara doesn’t like about 529 plans she said, “there’s nothing I dislike, to be honest.”
The next mom I want to share with you is Dee from Kids Money Academy. Dee shares what she likes about 529 plans and what she doesn’t like as well. She said, “I am a lifelong learner and I try to raise my children with the same mindset.” The second thing she likes about 529 plans is that she feels comfortable knowing that the money she saves isn’t being wasted. This statement is very important because it can feel like the fund could be lost if your kids don’t go to college. But this isn’t the case. Just like Aunt Kara stated, the funds can be transferred to another beneficiary if your child doesn’t want to use the funds for education or you can pull the money.
Dee did share what she doesn’t like about 529 plans is that “the investment options are pretty limited by I understand why it is designed that way.”
What was your biggest concern with saving for your kid’s college?
When you first learn about 529 plans, I definitely understand that you might have some concerns. Every time I would talk about 529 plans in my community I would get asked about scholarships and FASFA. A lot of families don’t make enough to drop large amounts of money every month and want to at least help with tuition payments. The most important conversation to have before opening a 529 plan is what your goal is. Are you trying to cover just tuition, room and board for the first 2 years, or cover everything? For us, we first layered our goals. The first goal is to cover tuition, tutoring, and supplies. The second layer would be for housing for the first two years and outside of our 529 plan, we would like to save for a car.
But what would happen if our kids got scholarships or didn’t get the Pell Grant? Well lets get into that.
What if my kids get a scholarship?
What if my kid gets a scholarship is probably one of the first questions parents ask when talking about 529 plans. If your kids get a scholarship this is a great accomplishment and opportunity that’s not going to hurt your 529 plan. On the contrary, the 10% penalty is waived if you pull the money for non-educational expenses if you get a scholarship. You will have to owe federal and state taxes as you would with any investment, but that’s expected. You also have the option to transfer the beneficiary to another child or for your future grandchild. This is a blessing in every way to have the option of doing what you want with the funds you set aside because you own the account.
Will 529 plans affect the Pell Grant or FASFA in any way?
To be honest with you, yes. Having money set aside over $10k will be seen and considered an asset for FASFA and that affects the Pell Grant. I don’t want this to deter you from saving and investing in your children’s education. Because the whole point of a 529 plan is to not rely on what is given and take control of your choices. College and education are becoming more and more expensive, and not having money to afford these costs can hurt us more than we might think.
The point of the Pell Grant is to help those families that clearly can’t afford to save or invest in their kid’s education. Don’t feel bad for being in a position to not need government assistance or be at their will of what they offer. Let’s take pride in being able to create choices with our money and how we want to spend it on our kids.
To offer you more information and resources on financial aid and 529 plans, check out savingforcollege.com.
Estimating How Much to Save
One of the best financial tools to figure out how much you need to save in your 529 plan is a college savings calculator. These calculators will help you estimate how much you need to contribute towards your 529 plan to hit your goal. I personally love that just consistently saving and increasing contributions, when possible, helps us stay committed to funding our 529 plan goals. This is a great approach to real-life scenarios.
Aunt Kara quoted, “My biggest concern was trying to estimate how much we would need to save to cover a 4-year college education by the time our kids went off to college. Then I realized it didn’t matter. We just needed to keep saving what we could each year until they were at that point of needing the money.”
Dee quoted, “When I first started contributing to a 529 plan my biggest concern was what if I am not saving enough. Then I quickly realized that actually not saving at all is worse than “not saving enough”. Now I prioritize my savings based on our different family goals and I don’t feel guilty about how much I save for kids’ college on an annual basis.”
How Much are Moms Saving in a 529 Plan?
The statement of “personal finance is personal” is a good starting point when deciding how much to save ina 529 plan. It depends on how well-positioned you are financial, meaning how much extra money you can comfortably push towards it. For my family, it started off small, since we still were working on positioning ourselves. Our plan is to increase our contributions by $50 for each of our kids as our finances get stronger and increases. This gives us a realistic approach that keeps our contributions consistent.
For Aunt Kara she quoted, “It has varied over the 18 years we’ve saved. A few hundred here and there for the first few years. Then we increased our contributions once they were out of daycare. Since paying off our mortgage, we redirected those house payments to the kids’ 529 plans. Then we put thousands in their accounts every year.”
Dee shared, “This year we are saving around $150 for each kid on a monthly basis. I say this year because I re-evaluate our numbers on an annual basis and came up with a number for each kid at the beginning of the year based on our overall family goals.”
How to choose a 529 state plan
When it comes to choosing a state 529 plan the first thing you need to understand is that every state has its own plan. The state picks the companies and funds that you can pick and not every state offers the same tax benefits. Those are the two main things to look for when deciding if your state has a good 529 plan. For me, California didn’t offer many benefits and the investment options were a bit everywhere. We decided to choose the Fidelity Unique New Hampshire 529 plan.
Can you open multiple state 529 Plans?
Aunt Kara quoted, “We chose a state plan. Actually two. Many years ago, our home state plan was not our best option. There was no tax benefit and the management fees were higher than in other states. Years later, they made major changes and added a tax credit and lowered the management fees. So we transferred our money from one state plan to another. It was very simple to do and there was no penalty.”
Dee quoted, “Arizona and Utah. This is kind of funny and embarrassing at the same time but I know many parents can relate. The first one was Arizona and you know why? Because my brokerage is with Fidelity and Fidelity manages Arizona 529 plans. At one point as a CPA, I was suffering from analysis paralysis when it came to everything about 529 plans. Because I was putting so much pressure on myself to make “the best” decision. Finally, I told myself ENOUGH is ENOUGH! So, I went to the Fidelity website and without much thinking, I opened the first 529 with Arizona state.”
Dee also shared, “The second one I opened with Utah (my529.org) This time I’ve done my research and I looked into all pros/cons and decided to go with Utah state plan. Depending on how the Arizona plan performs, I may change that one to Utah as well in the future. We shall see!”
I know this blog has a lot of information to consider. But the most important thing you need to know is why you’re investing. If your goal is to help your kids avoid student loans and offer financial help for education? Then a 529 plan might be the best option to start funding as early as possible. I love all of the relatable advice and life lessons Aunt Kara and Dee shared. It’s nice to hear from real moms who invested in their kid’s education and learn from their experiences.