Happy 529 Day! Today, 5/29, is often cited as a day to look into and donate to 529 college saving plans. (Are we all too Foolish to associate 4/01 with 401K plans?)
I’ll get to all the exciting stuff in 529 Plans in a minute, but first I’d like to reflect on Memorial Day weekend. There’s a lot going on in our country (assuming you are reading this in the US) and it’s helpful to pause and reflect on the good things and those who fought for those good things.
It’s because of those brave people that I can experience stupid, insignificant problems like spending hours at IKEA to find that they were out of stock of everything I wanted. It seems like a big deal at the time.
Now let’s get back to the wonderfulness of 529 plans.
Eleven years ago, I was looking for some way that I could help get my newborn nephew started on the right financial foot. I didn’t have a ton of money, but I had time. Given that he didn’t have object permanence yet, I had years. If I had the chance, I might have opened up a retirement account for him. However, it seems that I’m the only one crazy enough to think of tax breaks on such things.
I went for the next best thing, saving money for education. With 18 years, I figured that whatever I contribute will likely be 4x for him. Mathematically, that is roughly assuming 8% return and using the Rule of 72 to double once by around age 9 and again at age 18 (72 / 8% = 9 years.)
Until I started have kids of my own, I put a few dollars in there for birthdays and Christmas. Now, 11 years later, it’s grown fairly nicely. A lot of that is due to the great run of the bull market. It might end up being enough to cover 1/3rd of a year of tuition by the time he gets to college.
It should make a very noticeable difference for him, but I barely even noticed the money was gone. I feel there are very few “no-brainer” decisions in the world, but this is one of them.
Last month, I came across a regular reader and commenter, Stephanie from Graduated Learning, and her Tweet:
Friends, I'm the worst PF person/mother: We still haven't opened a 529 (or other college savings) for our daughter. Help! Please send your advice/recommendations so I can get this figured out!
— Stephanie (@StephTheBlogger) April 10, 2018
I should have probably sent my guide on How to choose a 529 Plan, but I figured that’s actually the easy part. I just gave it a Google search and there are several high quality sources there.
Instead, I shared something extremely interesting that my state, Rhode Island, does. It gives you $100 grant if you sign up when your baby is born. It’s the opposite of the old Monopoly Community Chest card where you pay the $100 for a baby.
However, since Stephanie doesn’t live in Rhode Island, I figured I’d use the same motivation:
Rhode Island gives a $100 grant if you sign up for a 529 Plan when your baby is born.
I'm not RI, but I'll PayPal you $25 if you can show me you opened one up in the next 3 days. :-)#Motivation
— LazyManAndMoney (@LazyManAndMoney) April 10, 2018
To my surprise a couple other long-time personal finance bloggers, Poorer Than You and My Journey to Millions saw this and decided to jump in:
Looks like we are up to a $75 in free money for @StephTheBlogger to set up a 529 plan in the next 3 days.
At this rate, we'll have tuition for any school covered in by tomorrow afternoon. :-).
— LazyManAndMoney (@LazyManAndMoney) April 10, 2018
The plan worked! Baby Stephanie has a 529 Plan.
With my 4x rule above, we can expect the $75 to grow to around $300, which isn’t even a drop in the grand scheme of college savings. However, Stephanie is going to start monthly contributions. Baby Stephanie should be the beneficiary of years of compound interest.
I’ll be the first to admit that I loved how this worked out. I often need a kick in the pants to do what seems like a small, insignificant thing. Now, I just have to figure out how to draw on this experience to motivate myself.
I love how that worked out! :) Sure do wish CA had any sort of incentive like that :/
Nice job!! I started contributing when our kid was born. It’s a great account. If he doesn’t need it, we’ll gift it to one of our nieces and nephews. College will be expensive when they’re ready for it.
Thanks for giving me the kick in the butt I needed to get things going!