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How To Start a College Fund

By Guest Contributor

By Amanda of The Naked Ledger 

After eight years of giving financial advice to individuals, couples and families, I ditched the proverbial pantyhose to stay home with my toddler. Four years and another baby later, I still love giving those money muscles a good workout. Friends ask me all the time about how to save for college and here’s what I tell them.

1. Don’t.

There are a thousand and one ways to pay for college and only ONE WAY to pay for your own future financial well-being and that’s to save and invest your money. Saving for college should be the very last duck in a very long row of ducks, including a retirement plan, an emergency fund, plenty of insurance and everything in between. I know it seems counter-intuitive that college should come last because as far as your time horizon is concerned, it’s the bill you get hit with first, but it’s true. I’ve seen far too many people in their sixties wake up and suddenly wonder where their retirement plan is and sadly it’s usually hanging on the wall of their kid’s house signed by a University Chancellor. If your kids are determined to go to college, the fact that you didn’t save enough money for it won’t stop them. It sure as hell didn’t stop me.

2. Choose a 529 Plan.

That said, once all your mallards are flaunting their feathers, go ahead and look for a 529 Plan. Unlike a regular savings account for a minor (UTMA/UGMA), a 529 is specifically and exclusively for college. It is not tax deductible, but you fund the plan in today’s after tax dollars and the account grows tax free no matter how much it earns. As long as the money is spent on college expenses, it can be withdrawn federally tax-free (and in some cases, state-tax free as well). A huge benefit of these plans is that the parent controls the funds for life, which means that there’s no chance Danny is going to turn 18 and spend his college money on a Corvette. 529 plans have an owner (you) and a beneficiary (your kid) and you can change the beneficiary to another family member at any time, just in case Danny moves to Guatemala instead of getting a degree.

3. Complete the college savings plan application online.

Unfortunately, I don’t know you, so I can’t say EXACTLY which 529 plan you should choose, but I can say that every state has a plan and ANY plan is better than none. There is high quality objective research available at CSPN. Do your homework and look for a plan that has low fees and good performance. Once you’ve selected the plan, fill out an online application IMMEDIATELY. College savings accounts don’t grow from good intentions alone.

4. Fund the college savings plan.

Once you’ve picked a plan and filled out the application, it’ll be time to select an investment option. It’s no secret that things are SCARY out there right now and not everyone is comfortable investing in the stock market. Fortunately, most 529 plans have multiple investment options ranging from ultra-conservative state treasury funds to age-based asset allocation portfolios. Pick the type of fund that will allow you to sleep at night. The main goal of a college savings plan is to keep up with the outrageous inflation on college tuition, so keep that in mind when you choose. Many plans can be opened with as little as $25, so the fact that you haven’t won the lottery yet should not stand in your way of getting started.

5. KEEP funding your college savings plan.

If you’re serious about helping your kids pay for college then the best way to make that happen is to a) take care of your own financial health first (see #1) and b) fund the college savings plan slowly and steadily. Pick a monthly amount for each child and stick to it. Personally, we set aside $150 per child per month. It’s not enough to fully-fund even the most inexpensive of college experiences, not even close, but it’s a start. Finally, once you’ve opened the account and begun funding it yourself, don’t forget to advertise it to the grandparents!

Photo by ken +

Guest Contributor
About the Author

Guest Contributor

We often publish pieces by guest contributors. If you’re interested in being one, please drop us a line at contact[at]alphamom[dot]com.


We often publish pieces by guest contributors. If you’re interested in being one, please drop us a line at contact[at]alphamom[dot]com.

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  • amy

    February 25, 2009 at 8:47 am

    thanks for this- I like how you think about it all!

  • Jamie

    February 25, 2009 at 10:31 am

    nice perspective!

  • Janssen

    February 25, 2009 at 11:27 am

    Great post. I especially like #1 – my scholarship meant so much more to me because it meant I didn’t have to fork out the money myself, rather than just meaning the school funded my education instead of my parents.

  • Mrs. Kennedy

    February 25, 2009 at 12:51 pm

    Bookmarking this. Thanks, Amanda!

  • Aimee Greeblemonkey

    February 25, 2009 at 12:55 pm

    Whew. This was the same advice I got a while back and I have been following it religiously. Great post!

  • Scissorbill

    February 25, 2009 at 1:27 pm

    I especially like #1 too. I’d rather pay for my own college and have parents who can support themselves through retirement than any alternative!

  • Marie

    February 25, 2009 at 1:58 pm

    One other note on not saving for college.The amount saved could actually decrease the amount of aid a student could be eligible for.

  • heidi

    February 25, 2009 at 11:50 am

    Nice tips. With 4 kids I knew we could never manage to save enough. I worked for 3 years to get a job at a local university. They will supply the tuition – kids must supply the grades and I get paid a little less. I say it’s a joint endeavor. But they can go to school now with greatly reduced costs.

  • Jenn

    February 25, 2009 at 5:30 pm

    This is great advice! My mother recently gave me piece of advice #1. She notes that she didn’t know even when I was starting high school how she would send me to college, but between scholarships, grandparents, my having a job, and I think one year’s small dip into her plentiful retirement savings, it all got paid for with minimal debt. She has said specifically that her retirement plan was pretty much the best idea to invest in–in really rough times or with sudden large expenses she’s sometimes had to take money out of it temporarily, but since it’s a very long-term plan for saving that doesn’t end up impacting her when she’s looking to retire, while saving directly for those other big costs and not for retirement would mean she’d be out of luck at retirement time.

  • ikate

    March 9, 2009 at 2:12 pm

    Love #1 – I think so many parents (SAH mom’s especially) view their kids college funds as more important then their own retirement, but as my sister says “they don’t give scholoarships and loans for retirement”. Plus, I’m still paying off my own college loans so funds for my daughter’s college are not high on my list. It will be her degree, not mine – no reason for me to foot the entire bill. I will pay for some, but never all of her college.