One of the smartest moves you can make financially is starting a 529 plan for your child’s education when prices are low. It’s key to find the right balance in your contributions to avoid over or underfunding your child’s future educational needs.
In 2020, I decided to increase my investment in my daughter’s 529 plan due to the market downturn, bumping up our contributions significantly. Initially, I only planned to contribute $15,000, but by the end of March, I had put in $75,000. This approach was based on taking advantage of lower market prices and maximizing tax-efficient growth opportunities within the 529 plan rules, which allow significant upfront contributions.
However, by April, as the market began to recover, so did the value of our children’s 529 plans. This led me to reflect on the right amount to save based on a child’s age, especially considering the continuously rising costs of college tuition.
On another note, the worth of a college degree has been declining, a trend accelerated by the shift to online learning during the pandemic. The traditional benefits of in-person college experiences, such as networking, are diminished in an online setting, which doesn’t justify the same tuition costs.
Despite the challenges, the need for planning remains critical. To determine how much to save in a 529 plan, consider factors like expected college costs, your investment timeframe, and desired tax advantages. For instance, you can contribute annually up to the limit without gift tax implications, a strategy that can significantly enhance the plan’s growth potential due to compounding.
Looking ahead, it’s wise to adapt your strategy based on evolving educational costs and your child’s potential career path. Ultimately, ensuring you have enough saved without sacrificing other financial goals or overcommitting to a 529 plan is a delicate balance that requires ongoing adjustment.
