Have you heard the great news about the tremendous benefits of 529 college savings plans? Before you rush out to blindly set one up, you may want to consider these 3 ideas before you do. They may very well save you thousands of your hard earned dollars.
As college costs continue to rise, parents are looking for any reliable way to prepare themselves for what they believe to be an inevitable budget buster. In recent years the 529 college savings plan has gotten a lot of media coverage. Parents have rushed out by the hundreds of thousands to establish these college savings vehicles only to realize that they got more than they expected.
To be clear, a 529 plan can be an extremely beneficial financial tool that parents can use to assist in paying for a child’s or named beneficiaries educational expenses after high school. But, is the lure of this college financial aid benefit more of a distraction of what parents should really be focused on. Here are three reasons why you should not have a 529 savings plan.
Reason #1 – You Have Consumer Debt
If you have credit card debt, car loans, student loan debt or you owe Uncle Joe $2,500, you would be well served to use the funds you would be applying to the 529 plan and use those funds for the express purpose of paying off your debt.
I go more into this concept in my 3-part video training series for parents but let me just say this, the most important thing you can provide your children is not a college education. I know this seems counterintuitive in today’s culture but it is true. The most important thing you can provide your children are parents that are financially secure. Carrying consumer debt while contributing to 529 college savings plans that have no hope of generating the amount of interest your creditors are charging is ridiculous.
Reason #2 – You Are Not Fully Funding Your Retirement Account
Listen, I know what its like. I have 2 children of my own. We want the best for them and therefore we think that if we sacrifice enough, it will somehow add value to what we have already provided.
You and I agree, a college education is the key to higher income and a better quality of life. However, what do you think happens when children realize their parents have sacrificed their financial future for there own? How does the child now feel knowing that “because of them, this is why my mother and father have to work long into their golden years.”
Reason #3 – A 529 College Savings Plan is Your Only Plan
In the 1800s military Field Marshall Helmuth Karl Bernhard Graf von Moltke is quoted as saying, “no battle plan survives engagement with the enemy”. If you are in a position where a 529 plan makes sense for you and your family, I would encourage you to not make the 529 plan your only plan.
Funding a college education is an exercise that requires a well thought out strategy. Make sure your overall college funding strategy is based on investments but also the basic fundamentals of college financial aid.