A great thing to do if you know you want kid(s) and are able to is to start funding their college account now.

Why? The cost of college tuition has been outpacing inflation at an astronomical rate. I started college in 1995 at Barnard College in NYC. Tuition at that time was ~ $20,000. 2016-2017 tuition is $48,614. That’s over a 200% increase in tuition in about 20 years. I qualified for financial aid and only had $16,000 in loans when I graduated in 1999. Lucky indeed.

Of course, medical school was a different story and that tacked on another $150,000 in loans, but knowing how much other students graduate with now (> $300K !), I still consider myself quite lucky. I qualified for financial aid at Columbia and received a half tuition grant ($20K) and took out only Stafford loans and a private loan from Columbia funded by alumni.

The noose I feel around my neck from these loans is enough for me to want to not have this (entire) burden for my (future) kid(s). So much so that I started a 529 account NY in 2016. A 529 account is an account that you contribute post-tax dollars into that grows tax -free and can be withdrawn tax-free if used for qualified educational expenses. Kind of like a Roth IRA for education (which btw, you CAN use your Roth IRA for qualified educational expenses, but it should not be earmarked as such!) There are numerous 529 accounts and they are state sponsored.

NY is one of the states that allows a state income tax deduction on 529 plans (up to $5,000 per year). You can also benefit from this tax break even if you live outside of NY as long as you have NY income. So I am currently funding this account up to the state income tax max deduction per year. I expect that in about 5 years, I’ll be able to increase that to $10,000 per year. I should have anywhere between $150,000-$250,000 in that account once said kid attends college. Time is on my side. Note that the annual limit to contribute to a 529 is limited to $14K per person or $28K per married couple to avoid possible gift taxes and for 529s, you can actually front load the account 5 years at a time.

I do not feel the need to fully fund their college education. Mainly because I may not be able to due to my late start at my own savings (as far as I know, there is no such thing as retirement loans) and I do want my kid to be grateful and have “skin in the game” for their education. I do not think most people appreciate things given to them for free. Matt and I also feel strongly that unless our kid gains acceptance to a top private school (aka Columbia, NOT Colgate) then they can go to state school.

Edit: You’ll need to name yourself as the beneficiary until the kid is born.

[ Cute gecko in Big Island, Hawaii ]

Do you have a 529 account for your kid(s)? Are you planning on fully funding their college education? Comment below.

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