Would you rather get cash for college or a silver spoon? One of four new ads for Virginia’s 529 college savings plans debuting next month on YouTube and Facebook (and tv) is set at a baby shower. The coveted gift: a check made out to baby’s college savings account.
The ads are meant to appeal to Millennials who are new parents. It’s the generation with a savings ethos, student loan debt worries of their own, who want their kids to get off to a easier start. They’re not shy about asking friends and family for cash to help pay for their progeny’s future college costs.
While older parents might think it’s bad manners to ask for a specific gift, younger parents are absolutely okay with it, says Mary Morris, chair of the College Savings Foundation and Chair of Virginia529. “There’s a definite generational gap,” Morris says. “The whole point is it’s a great gift for any occasion, even a baby shower. You can let everybody else know this is a great strategy, this is a priority of mine.”
You’ll never guess what Morris is taking this weekend as a gift to a friend who just had a baby boy. A gift certificate showing that she made a $50 contribution to his Virginia inVest 529 plan. Her friend sent her a text message last week saying she set up the account. All you need to make a contribution is the child’s name and date of birth.
Getting into college is hard enough. Paying for it shouldn’t be. Find out how to save thousands on higher ed.
Once people find out about the tax advantages of 529 college savings plans and start saving, that tends to be their primary savings vehicle. More college savers are using 529s than earmarking taxable stock accounts, CDs or savings accounts for college savings. With a 529 plan, the money you contribute grows tax-free and comes out tax-free when it’s time to pay for college. In addition, 34 states offer state tax breaks for contributions upfront. Forbes' William Baldwin explains how you'll win if you find a cheap 529 plan and get a state tax break here.
Afraid of locking away too much? If you need to take the money out and use it for something other than college, you pay taxes and a 10% penalty on earnings (not contributions).
In the Virginia InVest plan (that’s the direct-sold plan, there’s no broker in the middle), Morris noticed that the most aggressive portfolio designed for the youngest beneficiaries was being picked by most new accounts as an investment option. She thought that people with older children might be opening new accounts to catch up after the recession. But running the data, she found that virtually everyone signing up for this portfolio was young with children in the 0 to 3 age range. The average opening balance at InVest: $3,000 (in most states, you can start investing with as little as $25).
A recent College Savings Foundation survey confirmed that parents are saving early, with 55% starting to save by opening up 529 accounts between child’s birth and five year birthday. That’s smart because the earlier you start saving, the more time you have for tax-free earnings to compound.
Padding those accounts with gifts from family and friends will help grow the balance. Grandparents are willing to step in. A
See also:
