Choosing a 529 Account

As I mentioned a few days ago, our resolution this year was to be more disciplined about saving for our children’s college education. We had been waiting for our youngest son’s social security number in order to be able to open his 529 account.

We finally got it last week and his account has already been set up and funded. We have been very blessed in that my in laws have given a very generous initial contribution to both of our children’s college funds. We have been lucky not only by the amount they have given but that they gave them this gift so early in their lives. They both can benefit from compounding interest in their savings for the next 18 years. That makes for even more savings. But that doesn’t mean we can slack off in saving for their college expenses. I had my husband change the number of deductions he claims on his paycheck to lower the amount of money we get refunded from our taxes. With the “new found” money we are sending $50 a month to each of our sons 529s. In addition we will continue sending any mileage reimbursements from my husband’s job.

Right now our sons’ 529s are with the State of Nevada. Some of the things we considered when choosing a plan were:

  1. Minimum contributions: a lot of the plans nowadays don’t have high limits for initial contributions. For example College Savings Iowa only requires $25 for initial contribution and a payroll deduction of $15 per pay period.
  2. Investment options: We chose a plan that had a wide range of investment options. This is good because you have a lot of options but it can also lead to confusion. A 529 plan is not for speculating with the funds that are in there. To prevent this a lot of plans limit the number of times in a year you can change where your funds are invested or allocated.
  3. Fees and Expenses and Investment manager: For us these two were closely tied. We are very confident with the way the Vanguard group manages its funds. So we wanted a plan managed by them and that offered mostly its funds because they have some of the lowest fund expenses.

You can compare different 529 plans using this tool. You might even be able to save on your state taxes, depending on where you live.