Many thanks to Ryan Craft for writing last week’s market summary. I couldn’t write last week at the last minute because my eldest child unexpectedly won an award from the English Department a day before graduation, and we had to change our travel plans.
Graduation was so exciting – I couldn’t have been more proud. I’d been hoping for that day since before she was born, and within a month of her delivery, I had a 529 plan up and running.
529 Plans are awkwardly named, but are an excellent tool for college savings. The primary benefits are as follows:
- Missouri residents can claim a state tax deduction of up to $8,000 per person or $16,000 for those married and filing jointly. Different states have different rules, but getting a deduction is common if you contribute to your state’s plan.
- Tax-free withdrawals are available when the funds are used for qualified expenses, such as tuition, room and board, books and supplies, computers, and internet access. And it’s not just for colleges—funds can go towards trade and vocational schools, graduate schools, continuing education, registered apprenticeships, and some private high school costs.
Because I started the account practically at birth and markets did pretty well over that time frame, we benefited from market compounding. In broad terms, I only put half the money in the account that was ultimately used for school—I like to think that the market paid for the other half.
Of course, that’s not a guarantee and it just one person’s experience, but it’s still a powerful anecdote. I know folks who weren’t as fortunate, but my ride had some bumps, like the 2008 financial crisis. Granted, that was a long time ago, but if you’re using the age-based programs I recommend, the portfolio reduces stock exposure as college gets closer.
The only trouble with the 529 isn’t the plan itself; it’s not knowing how much college will cost even a few years before your kid heads off. Looking at the account balance at the outset of high school, I realized plenty of money for one of our fantastic state schools, but it was desperately short for some of the more expensive colleges (like my alma mater).
At that point, I stopped contributing to the plan and set aside general savings, which could be used for college or something else. As it happens, the plan worked perfectly – there was about $5k left over, which I transferred to my other child. There are a lot of cool, flexible features that help deal with this kind of uncertainty.
Congratulations to all of the 2025 graduates (and their parents and grandparents)! It’s a wonderful time that can be made even better with the help of 529 plans.
