Putting money aside for your child’s educational needs can be less stressful if you take action early. When you have a solid financial plan, you can enjoy the precious moments of childhood while preparing for the years to come.
A 529 plan, also known as a qualified tuition plan, is a tax-advantaged investment account. Like a retirement account, a 529 plan allows you to make investments that potentially grow tax-free over time. In Oregon and Washington, you can open a 529 account with as little as $25.
What Oregon residents should know about 529 plans
The Oregon College Savings Plan is a 529 plan sponsored by the state of Oregon and administered by a division of the Oregon State Treasury. Any U.S. citizen with a Social Security number or tax ID can open, or be the beneficiary of, an account.
Oregon residents may qualify for an income tax deduction. Contributions of up to $2,435 for individuals and $4,865 for joint filers are eligible for the 2019 tax year.
You should note that if funds are withdrawn for non-qualified expenses, the state of Oregon will recapture those tax benefits. Every plan has different rules about what counts as a qualified expense. The Oregon College Savings plan can be used for tuition, books, certain room and board fees, as well as computers and school software.
What Washington residents should know about 529 plans
Washington residents have two 529 options available, the GET Prepaid Tuition Program and the DreamAhead College Investment Plan. The GET plan is only available to Washington residents, while the DreamAhead plan is open to any U.S. citizen.
While the DreamAhead plan is similar to the option available in Oregon, the GET program is a little different. Here’s how it works:
- Every year, the GET program determines the price of a unit. 100 units will always equal one year of tuition. The 2019 price per unit is $121.
- You buy units at the current price and hold on to them. No matter how much the cost of tuition rises in the future, your units will always maintain their value.
Therefore, if you buy 100 units this year, you will have one year of college tuition and fees covered, no matter how prices change.
How much will you need to save for college?
It’s no secret that a college education is one of life’s biggest expenses, but the reward of an advanced education is priceless. Nevertheless, many parents wonder if they will be able to afford college for their children in the future.
Every year, more than 1.2 million millennial women become first-time mothers and many of them still have student debt of their own. It’s easy for first-time parents with student loan debt to recognize how important it is to save for a college education, but only 29% of new parents utilize the benefits of a 529 plan.
No one possesses a crystal ball that can foresee how much college will cost in the next 20 to 30 years. But based on trends from the last several decades, it is possible to make predictions. A child born in 2019 could need as much as $500,000 to attend college in 18 years. How much might college cost you and your children?
Why should you make automatic contributions to save for college?
If you have to manually take money out of your budget every month to invest in a 529 plan, it might not happen. Over the long term, inconsistent contributions could negatively impact your ability to save enough money for your child’s education.
Automatic investing takes the worry out of saving for the future. A set-it-and-forget-it method helps you stay on track with your goals. Most plans allow you to set up automatic payments through your employer payroll or a bank account.
In both Oregon and Washington, there are several options for how to invest the money in a 529 plan. One common option is to utilize index funds. Many investors appreciate index funds for their low costs and potentially lower risk, compared to buying individual stocks. An index fund approximates the gains and losses of an index of publicly traded companies, like the Dow Jones or the S&P 500. If that index changes value, a respective index fund attempts to change in tandem. A financial advisor can help you determine if this option is a good fit for your risk tolerance.
One option for ensuring you consistently contribute to a 529 savings plan is to make automatic monthly investments. Starting early and saving regularly can make it easy to stay on track with your college savings goals.
As you think about saving for college, be sure to consider some of the alternative options for saving for your child’s education, especially if you are a little behind and are closer to the college start date.
How community colleges help you save money
Another way to maximize your 529 savings is to have your child consider attending a community college for two years before transferring to a four-year institution. This route can save you a significant amount of money. On average, students in Oregon who earn the first 60 credits of a 120-credit degree at a community college save $10,823.
Additionally, this route can be a great option for students who are unsure of which major they will choose. Two years at a community college allows students to explore their options while still earning credits they can put toward their degree.
Start saving for your child’s future today
Saving for college is just one of many financial considerations you have as a parent. Check out our financial education resource Enrich to discover more ways you can enable your child to achieve their educational goals.