Tips For Getting Ahead of the Game With Your Child's College Savings Plan

The last thing I was thinking about while pregnant was setting up a 529 college savings plan for our daughter. Seven years later, I'm still trying to figure things out when it comes to savings. I've luckily had help (thanks, Dad!) and I want to do the right thing with my own money, too. Last month, I had the opportunity to sit down with Stuart Ritter, a Certified Financial Planner at
T. Rowe Price, and took advantage of the great opportunity to ask all the questions I'd been wondering about without worrying that I was a complete college savings failure.

This was the first thing I asked Stuart, preparing myself for a big number. But his response made me feel less overwhelmed. He suggested that, "Instead of thinking about the big picture number, it's best to think about it as how much you can handle and what's realistic for your family." Stuart then elaborated, encouraging parents to talk about priorities, getting family involved, sooner rather than later, and putting away what you can handle each month. He also mentioned that many plans, including the T. Rowe Price College Savings Plan, can be started with just $250 initial contribution or $50 a month.

Everyone has a comfort level when it comes to asking others for help, which Stuart agreed with. "If you communicate out that one of your priorities is saving for your child's education, then that might help affect what is coming in." When it comes to gifting, it's really all an individual's choice. But if you give a gentle nudge that your child really doesn't need more toys but would benefit from something to help prepare her for her future, that will get the message out.

Stuart answers with, "Everyone that's bringing a new baby into their lives is going through a change, so it's important to really sit down and talk about where your priorities are." If saving for your child's education is more important than that bigger car, you're both on the right path. We all have the tendency to get caught up with baby fever, but the reality is that your little one doesn't care if she's in a shiny new minivan or your used hatchback.

The 529 is currently the most effective way to save for a child's education because it gives you tax benefits that don't exist with any other account." Some states offer tax deductions for contributions, and any earnings are tax free when used for qualified education expenses. This means more money towards college, and less towards taxes than with other types of accounts.

I'm quite wary of cash-back programs and cards, which made me curious about what the expert had to say. Stuart suggests that, "Anything you've done that helps move the money where you want it to go is fine. Just make sure you're doing the right thing, because if it's only kicking in $3 per $500 dollar purchase, is it really worth it?" However, if you literally take the money you get back and then turn it right around into your child's college savings plan, that works. Moral of the story is, try not to get caught up on charging big ticket items with a specialty card and tricking your brain into thinking you've taken care of your child's college savings plan.

One of the biggest adjustments I've recently made is to start having deductions automatically taken from my paycheck. When I asked if I was moving in the right direction, Stuart said, "Absolutely. Anything you can do to automate the process that helps you achieve your goal so that you only have to make one decision and not a decision every single paycheck, every single month, is much more effective. Once you set it up to automatically happen, it just does and you end up forgetting about it. Plus, the the power of compounding can be pretty impactful. So, saving regularly and often is what you should aim to do."

Stuart's next point really hit home for me: if others can do it, so can I. He said, "Everyone says how maxed out and strapped they are. You can do it. People do this all the time. Try it for three months. If, after three months, putting $150 a month into an account is too much, you can always lower it. But, the most important thing to do, is start now. No matter how much, or little it may seem you're saving."


Stuart's final words really made sense and got me thinking. He said, "We can only see the car someone drives, only see the stroller they bought, but debt and savings are invisible. You don't know what their credit card balance is, you don't know what type of conversations are being had. All we're doing is looking at what we can see, which gives us a very skewed vision of what's going on. Make sure to align your saving to your priorities."

T. Rowe Price College Savings Plan was rated as one of the best 529 plans in the country by Morningstar, who rated the plan "Gold" in 2015. It is open to residents of any state and can be used at nearly any college in the country. You can start saving with as little as $50 per month and take advantage of tax-free earnings potential. This feature means less money toward taxes and more toward college. Friends and family can contribute to your account through gift contributions. Learn how to get started saving today.
TRowePrice529.com.

The T. Rowe Price College Savings Plan is offered by the Education Trust of Alaska. You should compare this plan with any 529 college savings plan offered by your home state or your beneficiary's home state and consider, before investing, any state tax or other benefits that are only available for investments in the home state's plan. Please read the Plan's Disclosure Document, which includes investment objectives, risks, fees, charges and expenses, and other information. You should read the Plan Disclosure Document carefully before investing. T. Rowe Price Investment Services, Inc., Distributor/Underwriter.

Morningstar analysts reviewed 63 plans for its 2015 ratings (10/20/15), of which four plans received a "Gold" rating. To determine a plan's rating, Morningstar's analysts considered five factors: the plan's strategy and investment process; the plan's risk-adjusted performance; an assessment of the individuals managing the plan's investment options; the stewardship practices of the plan's administration and parent firm; and whether the plan's investment options are a good value proposition compared to its peers. Plans were then assigned forward-looking ratings of "Gold," "Silver," "Bronze," "Neutral," and "Negative." Each year, certain of the industry's smallest plans are not rated. Analyst Ratings are subjective in nature and should not be used as the sole basis for investment decisions. Analyst Ratings are based on Morningstar analysts' current expectations about future events and therefore involve unknown risks and uncertainties that may cause Morningstar's expectations not to occur or to differ significantly from what was expected. Morningstar does not represent its Analyst Ratings to be guarantees.