Even before 2-year-old Finley was born, her mother, Mary Hill, was thinking about her college education. Hill, a postpartum doula, and her husband, Gary, an aspiring sports broadcaster, did their research. “I’ve used all the free online tools for calculating what college will cost us when the time comes,” Hill says. “The numbers are staggering — especially looking at the difference between average state school expenses and average private school expenses. It can be a bit overwhelming, even for people like me who love to research.”
The key is to get started early, says Debbie Gianelli, a certified financial planner with Whole Family Financial Services in Bothell. Gianelli helps many families — including the Hills — put together financial plans that include saving for retirement and children’s college educations. “I recommend that soon-to-be parents start saving for college as part of their nine-month ‘planning for a new baby’ budget,” says Gianelli.
“Time is your friend when it comes to almost any financial goal and investment strategy,” she says. “A 16- to 18-year time horizon allows a parent more time to save and to be more aggressive in their investment strategy in the early years. This hopefully leads to higher returns and having to ultimately contribute less. It also allows more time to even out the ups and downs of investments in the stock market.”
According to Gianelli, the current low levels in the stock market make this a particularly advantageous time to start saving. “Even very conservative investments that only pay interest will benefit from the effects of compounding over a longer period of time,” she says.
How to get started
Gianelli believes the best tool available right now to help save for a college education is any 529 college savings plan that offers mutual funds investments sponsored by a highly regarded fund company. “Because 529 plans offer tax-deferred growth as well as tax-free withdrawals for higher education, no other savings methods really can compare,” she says, “except, of course, to have someone else save for you!”
For some parents, using Washington state’s 529 prepaid college tuition plan, the Guaranteed Education Tuition (GET) program (get.wa.gov) makes the process of saving for a child’s college education easy.
Shaun Flanders, a Kirkland telecommunications manager, opened a GET account for his 15-month-old daughter, Makena. Flanders and his wife, Suzan, a pharmacist, say they liked the plan because of its guarantee: “Once you’ve purchased 100 units, you know for certain that you’ve bought one year of tuition and fees at UW/WSU or equivalent,” says Flanders. “You don’t have to worry about the value of your investment relative to the cost of the education you’re saving for and the flexibility GET offers … Makena can go to any of a very long list of colleges and apply her GET credits.
“The GET program seems to be fair; if Makena didn’t go to college for a really good reason, we could get our money back without penalty.”
Debbie Gianelli reminds parents that they can participate in a wide variety of 529 plans. “There are no specific incentives, such as tax deductions, for using the plan offered by Washington state, so parents are able to choose any 529 plan offered by any state in the U.S. to equal advantage.”
To make a 529 plan really work, Gianelli says, it is best to start early and to make regular contributions. Automatic monthly contributions from a checking or savings account, as little as $50 with most plans, is a good start. And Gianelli suggests socking away birthday and holiday monetary gifts into these accounts — before the kids are old enough to want to spend it.
Grandparents and others who want to help fund a child’s college education should also consider contributing to a 529 plan, rather than purchasing savings bonds, which tend to have a lower yield, Gianelli says. “Grandparents, aunts, uncles, even your postman can contribute to a 529 plan for your child. Parents simply provide the necessary information to their friends and family, and they can send contributions directly to the fund company.”
Gianelli urges parents of young children to begin investing now while time is still on their side and “the stock market’s on sale.”
Kathleen F. Miller is a Sammamish-based freelance writer and mother of two.