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Planning for college at age 3 months

Paul Banas
Author Paul Banas
Submitted 05-03-2015

Already you say? Still trying to finance that mini-van? Yes, you need to get at this today, and I say this as someone who is ruefully eying our own 529 Plan savings accounts for our two kids, ages 11 and 15.

If you start early, thanks to the magic of compounding, you may just have enough money to cover the projected $338,000 for four years at a public college and $667,000 for a private college. As the charts on this same page show, $300 invested monthly for 18 years (@ 7%) would get you to $129,000 at the end of 18 years. If you waited until your little one was eight years old, you would only accumulate $52,000.

The first thing you need to do is to open a 529 Plan with a financial institution. A 529 Plan allows you to put away post-tax money into an account to be used only for education for which you will not pay taxes on investment gains.

A key consideration in choosing any plan is to minimize fees. As an article on retirement planning in the New York Times yesterday pointed out, the outrageous difference in fees can have big effects on how much money you end up with.

For that reason, look for low fees. For comparison, a fund like Vanguard charges just .06% in fees. However, their same funds managed as 529 plans, pay around .20 to .25% in fees. A company like ScholarShare charges .10% to .60% for different plans including some which ratchet down risk as your child gets closer to college entrance. They have a good college cost and savings calculator as well.

Get started to day, at least adding it to your worry list. Just don’t put off too long getting a start on it. Hopefully, the increase in college costs will slow down, but right now, with no answers in sight, it’s better to plan for a costly education for your kids.