To 529 or not to 529: A Question for the Crystal Ball

Just a friendly reminder- I am not a financial planner, nor am I giving personal financial advice. I’m just sharing my story, as a single parent who dug themselves out of a crappy financial situation and who is trying to make smart decisions. Sharing this story with you should just be entertaining, and hopefully encourage you to do your own research. Maybe you won’t have to ping-pong back and forth as much as I do when figuring this crap out.

About three years ago, as I was reviewing my little money buckets, I was presented with a question that causes many parents to feel befuddled when trying to answer: 

How do I save for my kids' college expenses? 

I started some research, asked a few friends how they were planning on handling college expenses for their kids, and read online about some options. After a little while, a recurring thought continued to interrupt my thoughts. I had started this research asking the wrong question. Should it be HOW do I save for my kids’ college? Or should it be…

DO I save for my kids’ college expenses? 

The truth is, I’ve heard success stories from all types of strategies that parents have implemented with their kids for college assistance. Some parents helped their kids pay for college, and the result was grateful children who appreciated focusing on their studies. I’ve known people who did not receive any help from their parents, and who appreciated the accountability and responsibility they took on themselves for their higher education.

Given this anecdotal information, I’ve determined that each family and upbringing are case-by-case, and there is no one-size-fits-all action to this magic crystal ball answer to which I seek. As long as I have intentionally considered the options, I can only do my best and hope I made a decision that plays out well 10-ish years from now. 

Thinking more deeply, I realized that fundamentally, I don’t think I should pay for all of it. Not because I want to save more for myself. Not because I think my kid shouldn’t get a “free ride”. Ultimately, it is because I paid for a large portion of my own college and graduate school expenses, and I am much more competent because of it. I dealt with the payments, consolidation, and strategizing the state and federal incentives provided because of my career field. I learned more about the impact of interest, reading the fine print, and managing payments after college compared to someone who hadn’t.  This is one of the most important life skills I learned during those years.

So now that I’ve decided I want to help pay for some of YoungFUnd’s college, how do I prepare for something with so many variables that is 10 years away?

Planning for the future can be a ridiculous journey into my imagination. How am I supposed to know what my kid is planning on doing 10 years from now?  Although I am focusing my time and energy on the here and now, I can’t help but daydream a little bit about what scenarios may play out in the future, when I talk to my kid about life after high school…

Ms. FUnds: Honey, it’s about time to start filling applications. Have you made any decisions about where you want to apply? Or if you want to get some job training? 

YoungFUnd: *stubbing out cigarette* Whatever mom. I am going to hang here and kick it with my friends. I don’t want to get trapped into a career. Everyone who works seems miserable.

Ms. FUnds: Well, when you finish high school, you need to be working towards something if you plan on staying here. As we have talked about before, I have some money saved to help in part with college or work training, if that helps.

YoungFUnd: Nah, chill mom. I’ll just stay in the basement.

Ms.FUnds: This is Southern California. We don’t have a basement.

YoungFUnd: *peering at their new face tattoo in the mirror* I’m going to be an influencer. I just need to figure out who I’m going to influence and what I’m going to do for my content. I’ll figure it out someday. First, though, I need to keep researching.

*YoungFUnd doomscrolls for 8 hours*

Have I mentioned I am a black and white thinker? Here is another way the scenario can work out…

YoungFUnd: Mom! I got into USC! I can get my AA degree, Bachelor’s, and Master’s degree from there! It’s the best business school I got accepted into! My dreams are coming true!

Ms. FUnds: *gulp* *starts doing the math in her head* 

I don’t really see either of these options materializing, but there will be something in the middle that DOES happen, eventually.  

Diving down the rabbit hole of information, I was bombarded with mostly 529 plan information. It seems to be THE investment tool for college or vocational programs. The money grows tax deferred? I don’t pay federal income tax, or (in most cases) state income taxes on it if it’s used for the approved expenses? Sounds great!

…but what IF YoungFUnd doesn’t go to college?

…or attend a vocational program? 

There are ways to use the 529 funds other than college, and depending on the usage, there are penalties and fees. I won’t dare start going into detail here- that’s long, detailed, full of caveats for each state.

I continued to read about other college-saving methods; how some people simply saved for college and maintained flexibility in the money by using an after-tax brokerage account. Others have used their retirement accounts to access funds for educational expenses. There are many additional methods that families can use to prepare for the cost of college for their kids. It seems like each one has its own pros and cons, and the list of different ways to save for college grows long.

It’s a simple question, but it has so many breakoff points, depending on how things go. To make a decision, even a handy dandy simple flow chart can’t get the job done. Don’t worry, I tried anyway…

Turns out, overthinking doesn’t get me anywhere.

My kid may find a great job that doesn’t require college, and they could be very happy and productive. One thing I have learned during my journey towards financial independence is that having formal education is not the be-all and end-all to a happy life. I jumped straight from college to my graduate school, and then directly into the field of education. While I am happy with my job and have been able to contribute to my early retirement, I see there are many paths and strategies that a person can take, and they need to make their own decisions when it comes down to it. 

In the end, I decided to save enough in a 529 to help out the first few years of college. Enough, that is, assuming it’s not the most expensive college in the state, nor an international university with international student tuition expenses. 

For me, I think it makes sense to send some funds to the future for this likely expense. This takes the sting out of college expenses. It also strikes a balance to send some money, but not too much, towards the future, so that it doesn’t take away from “today”. No need to put extra pressure on an expectation for the future. I want to live life on my own terms, and raise YoungFUnd to do the same. 

I don’t want to invest too many eggs in someone else’s basket!