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Just have a child? Why you should start a 529 Plan

July 22, 2020

Congrats, you just had a child! Your life has just dramatically changed… Having a newborn is not an easy task. But what is easy is saving for your child’s future education. All parents want what’s best for their child. Parents want their kids to grow up to be strong both physically and mentally. They know higher education will help provide their child with endless opportunities. One thing parents also know is how EXPENSIVE college can be! The average annual cost of an in state 4-year public university is over $9,000. Out of state is over $23,000. That’s a 4-year total of $36,000 & $92,000 respectively. These numbers don’t even include housing, food, books or supplies!!

Why you should think of saving into a 529 plan for your child’s future education:

  1. You have time on your side to save & invest. If you start a 529 plan when your child is born, you have approximately 18 years to build up funds for your child to use for their education. A little every month can really add up over 18 years. Think about it. That’s 216 months to save! If you socked away $100/mo for 216 months you would have over $21,000 saved! Remember $100/mo is just over $3/day, it’s really not much when you put it in those terms. Now invest that money and receive an annual return of 7%, you’d have over $43,000 saved for your child! That’s a market growth of $22,000!! It’s truly amazing how a little invested each month can add up over time. Most importantly, if this money is taken out to pay for schooling and schooling expenses, that $22,000 gain is all tax free!
  2. Funds from a 529 plan may save your child from having to take out mortgage sized loans. Even if your child receives some sort of financial assistance, they may still have to resort to student loans. The main issue with loans, both federal & private, are they continue to grow larger as interest starts accruing the day you take the loan. You may not have to pay that interest right away but you will eventually. For example, $20,000 taken out in year 1 at a 6% interest rate, would grow to roughly $23,800 after 3 years! Your child would be responsible for paying this all back.

A large student loan can be a huge burden for a recent college graduate. Like I mentioned earlier, some students come out of school already owing a mortgage payment without even owning a home! This can be extremely burdensome when your child(now an adult) is trying to navigate adulthood, which already has its own challenges.

These were just a few of the many reasons why you should think about investing in a 529 plan. If you’d like to learn more, please feel free to reach out to us @ Mosaic Asset Partners.

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