If you’re like many people, you may have set a New Year’s resolution for 2022—get more exercise, eat better, read more books. Money management, however, probably isn’t on that list. In particular, saving for college is one of those things that is easier to put on the back burner. Maybe it still feels far away, or just insurmountable.
“I don’t know that it’s top of mind for people to say, ‘Yep, this year, we’re going to make a budget. And on top of that, in the spirit of financial planning, we’re going to address 529 savings, or college saving as an investment,’” says Tim Gorrell, executive director of the Ohio Tuition Trust Authority, which manages the overall operations of the state’s 529 College Savings Program.
But college savings may be the best goal of all to set your sights on this year. Investing money now in a 529 plan for your child may make paying for school much more affordable in the future.
What is a 529 Plan?
In case you don’t know what a 529 plan is, it’s a genius way to make the most of the funds you earmark for your child’s college expenses, as well as for some other types of schooling. You may get a state tax deduction for contributions, and earnings aren’t taxed at all when you withdraw funds to cover qualified fees related to higher education. Not only does that make it easier for you to pay those college bills, but it also helps reduce the chances that your child ends up saddled with staggering student loan debt even before they enter the job market.
“Once people see articles about 529 plans, or know that they’re out there, they often say, ‘Oh yeah, investing in one is a good resolution too,’” Gorrell says. And unlike that cabbage-soup-and-plain-oatmeal diet you may have begun in January—and already ditched—it’s simple to keep up the habit of making 529 contributions throughout the year, and years to come.
“Once people overcome that initial inertia and reluctance, that procrastination and uncertainty, then they’re encouraged,” Gorrell shares. “They realize, ‘You know what, we were able to invest $50 or $100 dollars a month, and we’re still able to put food on the table and do the other things we are doing.’” From there, it’s easy to just keep going: “Good behavior leads to more of the same,” Gorrell observes.
Making It Simple
It’s also easy to check how the money in a 529 plan is doing, Gorrell adds. Ohio’s plan, for instance, has user-friendly online tools that make it easy to take a quick look. “And then this past fall we launched a free mobile app called READYSAVE 529,” adds Judy Cunningham, public relations/community outreach manager for the Ohio Tuition Trust Authority. “People can just download the app, link it to their account, and see how it’s doing daily,” she says.
With all those features and that kind of convenience, you probably won’t need to think twice about making regular plan contributions. Yet there are also ways to take the thought out of it entirely. “For instance, people can do some type of systematic payment. Maybe they could take it out of their checking or their savings account on a monthly basis,” Cunningham says. “And maybe there’s a payroll deduction option. So those are ways that we help individuals keep that New Year’s resolution and keep putting money in.”
Staying the Course
Because 529 plan funds are invested in stocks, your account can go up or down at various times. “We just encourage people to stay the course for a couple of reasons,” Gorrell says. “[First], the stock market comes back. For instance, at the beginning of the COVID epidemic, March of 2020, the market had some of its worst days, and then it came back in April to have some of the best days in the market’s history.”
“The other part of that is that our portfolios are built with volatility in mind,” he continues. “While it may take a hit, all of our eggs aren’t in one basket, so to speak. And so if a certain part of the investment portfolio isn’t doing well, the other parts are helping. It’s a little bit of weatherproofing, and it’s built into the portfolio and the investment strategy.”
Of course, there’s no guarantee of returns on any investment. Yet the Ohio Tuition Trust Authority’s 529 College Savings Program has an incredibly impressive track record among such plans. “Returns are usually looked at 1, 3, 5, and 10 years,” Gorrell explains. “With the 10-year mark our performance is number one, and then in the 5-year mark we’re number two. We’re in the top five for the 3-year mark. For the 1-year mark we don’t show up so much, but we don’t put much regard on that. We don’t try to be the flavor of the day.”
In part, the Ohio’s plan’s success is due to the expert minds behind its portfolio. In addition to working with well-respected financial firms, the Ohio 529 plan relies on an investment board appointed by the governor, as well as the chancellor of the Ohio Department of Higher Education. “All these individuals must have investment banking or account experience,” Gorrell notes, “and so we have the strength of our partners and their best thinking.”
With such a distinguished group determining the 529 plan’s portfolio of investments, it’s easy to see why making contributions is a smart move. Opening a plan is simple, too. “You can go to our website, which is collegeadvantage.com, and hit the ‘open an account’ button on the home page. It probably will take an individual maybe 15 minutes to open an account,” says Cunningham.
Users are often astonished at the flexibility of a 529 account. Contributions can be as small as $25, and the funds can be used for more than just college—it can help finance many school-related expenses, certificate courses, and in part to pay off student loans. If the child the plan was set up for doesn’t use the money, it’s easily rolled over to siblings, parents, and a number of close relatives.
Clearly, a 529 plan is an ideal way to start building your child’s college fund. Before you know it, you’ll have made good on your new resolution—no cabbage soup needed.