Having a child changes everything… including how you think about college. Suddenly college is no longer just a place to live and learn, it’s a goal to save for, a cost to cover.
What’s the right way to save for higher education? Is there even a “right” way to prepare for the cost burden of college? Here’s how we’re saving for our five children’s college futures, and how we’ve landed on this abnormal method.
Don’t Be Like Everyone Else
Having been the recipients of wise college finance planning by our parents, we knew as soon as our own bundles of joy passed babyhood that we wanted to have a plan for them too. Our folks sagely encouraged a combination of saving, cash-flowing, and requiring summer jobs to get us through college.
Each summer I worked long days as a port agent for cruise ships that flooded our town each summer. I tell people that it was my dream job. My husband worked for his present company as an engineering technician, and also took on a part time job during the school year. We look back on that time with fond memories!
Over the last decade we’ve come to the realization that a typical four-year college might not be the best choice for each of our children. Many careers require shorter technical schooling or journeyman experience. This understanding has changed the way that we plan their college savings, leaning away from 529 and Coverdell plans in favor of low-tax custodial accounts.
Here in Alaska we are blessed to get a big chunk of change each October in the form of the Alaska Permanent Fund Dividend. The best thing about this dividend is that families receive one payout per child.
With regards to college savings, that means that each family has the opportunity to invest approximately the same amount for each child, without having to save extra each month. It can be difficult to put aside extra money each month, but transferring this lump sum dividend into a separate account once a year is relatively painless. For this reason, we’ve chosen to begin their college savings by simply investing each kid’s permanent fund dividend.
We’d love to add to this amount in the future, but until then we know that we’ll be able to add $1,000 or more a year without ever experiencing a decrease in our bank account. Our current college savings plan involves contributing to a Fidelity UGMA (uniform gift to minors account). The required opening balance is $2,500 on this account. After tithing, we put the remainder of the yearly dividend into an aggressive growth fund.
Depending on current tax laws, the gains from the account are taxed in a tiered manner; zero percent, child’s rate, adult’s rate. We love that our child can use this for anything, not just education expenses. If they’re diligent, receive scholarships, and work during the summers, this money can be used to help buy a house, pay for missionary work, or to purchase other investments.
We really appreciate the flexibility of this type of account over the typical 529 plan.
Ditching the Recommended 529 Plan
We initially opened state-sponsored 529 plans for our two oldest children. However, we have since stopped contributing to those accounts as we appreciate the greater flexibility allowed in the UGMA.
Only investing each child’s permanent fund dividend isn’t going to pay for four years at a private college, but it will give them a great head-start. It’s painless for us, and easier than paying for oodles of tuition later.
I am so grateful today that my folks opened a UGMA for me when we moved to Alaska. They also helped with college tuition, and I worked during the summers. I was able to use the money from the custodial account to help purchase the land that on which we later built our house.
We’re excited to give the same benefit to our kids. I can’t wait to see how it all works out! We’re excited, that is, as long as the spending of this investment doesn’t involve paying tuition at the University of Underwater Basket Weaving or the purchase of a mail-order bride 😉
How do you save for your children’s college?
All photos, unless otherwise attributed, are property of Loving Littles.