Happy New Year everybody!
If you have one or more children, it’s a great opportunity to get college savings started right now. You’re probably sitting alone in your office because everyone else took the week off. Chances are you’re not getting much work done with that kind of peer pressure. So take a few minutes to open a 529 savings account.
In Ohio, you can do it online in very little time. The only information you need is:
- Social security numbers for you and your kid(s)
- Your driver’s license number (or state ID)
- Your kid(s) birthday(s)
- Your checking account number (from the bottom of a check)
If you have all of that handy, it is literally a 10 minute task to fill out an online enrollment.
Q. Why should I do this?
A. Do you think College is getting any cheaper? Do it now. You want Billy or Suzie to be a success, don’t you? You’d like them to get their degree without taking out a third mortgage, right? The Chicago Tribune recently estimated that college expenses will increase 5% per year, for a projected cost of over $100K for public colleges and over $200K for private colleges in 15 years.
Q. Sure, but why should I do it NOW?
A. You know the arguments against procrastination. The most familiar is that the sooner you start saving, the sooner the proceeds of your savings begin to compound. With just an 8% return, $100 a month becomes $48,000 in 18 years.
Q. But that will work just as well next year, right?
A. There’s a very special reason for starting right now. The stock market took a huge nosedive a couple of months ago (maybe you heard about it?). But every time the market tanks, it comes back stronger than ever, and a huge chunk of that recovery takes place in the first year after the crash.
Q. What do I know about the stock market? I’ve never bought a single stock, so how does a market recovery help me?
A. Any good 529 plan (and Ohio’s looks like a pretty good one) will put your money into a mutual fund of your choosing. Mutual funds invest in the stock market for you. A professional manager, or a professionally designed model determine what stocks are bought and sold by the fund. You never need to understand anything about it. And because it’s a bunch of people’s money, the fund can buy a bunch of stocks. That’s a lot less risky because if one company goes belly-up, it’s only a tiny fraction of your whole investment.
Q. The 529 offers a whole list of choices. Which fund should I choose?
A. At this moment in market history, it would be difficult to pick a loser. In Ohio, you can choose between Putnam or Vanguard funds. Morningstar, which makes its living rating mutual funds, rates Vanguard a little better than Putnam.
Q. Can’t I do this next month when I’m not as sleepy from all the pie I’ve eaten?
A. Sure. There’s never a bad time to start saving. But if you want to take up to $2,000 off this year’s taxable income on your Ohio taxes (other states may vary), you should do it today or tomorrow.