Hello, Thriftaholics! As you probably know, Holly and I went to New Orleans last weekend for the nerd convention that we call FinCon. It was freakin’ AMAZING! Not only did we get to hang out with a bunch of our best friends from all around the internet, we actually learned a lot too.

I’m sure that Holly is going to give you a recap, so I don’t want to blow it. However, you can expect to see a few changes around here in the next several months – which includes seeing my ugly mug a lot more often. For those of you who know me, I’m excited to be back. For those that don’t, hold on because it can sometimes be a wild ride!

529 College Savings Plans

So, lately Holly and I have been discussing our two daughters’ 529 college savings plans. Since we started saving for college fairly early in our daughter’s lives, we have been able to sock away quite a bit of cash for each of them. In addition to making small monthly contributions, we’ve also been putting most of the money that they get as gifts into their 529 plans. As we all know, small amounts of savings can accumulate into big chunks of cash over time. While we’d love to be able to pay for both of our daughters’ educations in full, I decided to take a peek at a college savings calculator to see just how much that was going to run us. What I found nearly had me running for the toilet!

College is Going to Cost HOW MUCH?

I decided to bust out the “World’s Simplest College Savings Calculator” and the results blew me away. According to this completely non-biased tool – which I’m totally sure is not trying to sell me anything – projected 4-year college costs for my 5-year old daughter at a school currently priced at $25K/year are just over $200,000!!! Umm…WTF!

First of all, if college costs grow to be that outrageous, nobody is going to be able to afford to go. Second, it looks like it is community college and a part-time job for my little angels. Third, seriously, WTF!!!

Our Current Situation

At our current rate of savings, our girls will not have anywhere near that amount in their 529 plans. We do plan to use income from our rental houses to help pay for college, but that still won’t be nearly enough according to this calculator. After saving close to 40-50% of our income in retirement and savings, we are still going to have some money left over at the end of this year. I got to thinking that maybe we should think about putting a hefty lump sum into their 529 plans now and let that grow for a while- as we have done in previous years.  The details:

Pros

  • 529 plan savings will almost double.
  • Our state gives a 20% tax credit (that is credit, not deduction) on the first $5K put into a 529 plan each year.
  • We have a little extra, so why not?

Cons

  • You can only use the money in a 529 plan for educational purposes. What happens if they decide not to go to college? (Not on my watch girls!)
  • I’m kinda greedy.
  • We clearly aren’t going to be able to pay 100% for college, so is that money better spent elsewhere?

Options

Since we can no longer proceed blissfully unaware that we aren’t saving enough, we now have a dilemma. Do we tuck 5K away for the rest of their early years, taking full advantage of the 20% tax credit? (That’s $1,000 cold cash back, yo!) Do we put that money into a mutual fund, ear marked for their college which gives us more flexibility but also more taxes? Or, do we simply sock that money away into our own savings, possibly moving from a traditional bank to a credit union with a better interest rate? Ugh. Don’t get me wrong, this is a great decision to have to make, but sometimes ignorance truly is bliss.

What do you guys think? Let us know by taking the poll and leaving a comment below!