True or False?
You can only enroll in one 529 plan.

False! Amy Irvine, financial planner at the Rooted Planning Group, explains what’s really possible.

 

True or False? You can only enroll in one 529 plan.

Amy: That is absolutely not true. There are several options available and, in fact, depending on your circumstances, it’s not unusual for me to recommend a ‘balanced’ portfolio approach to many of my clients when saving for college.

 

So why would I save in more than one 529 plan?

Amy: Saving for college is just like saving for retirement—we want you to have multiple buckets so that you have options. Locking it all up in any one given vehicle may limit you.

I often have said, you can borrow for college, but you can’t borrow for retirement. So, funding your retirement really needs to take a priority. But, if saving now for retirement just means you are going to withdraw the funds for education later, that doesn’t solve the problem either. Planning for competing goals is always a struggle. As I say, you can probably have it all, you just can’t have it all right now.  And it is tough to sometimes see how your current actions will impact decisions that need to be made 16 or 17 years down the road!

So, what’s a parent to do?  Consider hedging your options.  If there’s a particular college that family members go to, think about a combination of a prepaid 529 (either state or private) and a college savings plan, together with a potential ROTH IRA (or back-door ROTH IRA) savings plan.  As your child ages, you will have a better understanding of their academic direction—at which time you have the option to rollover the college savings plans to the prepaid plans if it seems things are going in that direction.

 

How can I get started right now?

Amy: Here’s a few things you can do right now to get started.

  1. Work with a financial planner to determine the best allocation buckets for you and your family.
  2. Depending on your situation, open 2 – 3 accounts:

•  529 Prepaid Plan, 529 Savings Plan (direct plan preferred), and a ROTH IRA
•  Automate. Automate. Automate. Begin funding the accounts on a monthly basis (you could stagger the savings to make it feel less painful).
•  See if your employer will automatically send the funds to the accounts for you, so you never even see the money in your account–or leaving your account.

 

Check back for additional Myths & Misconceptions in College Savings with Amy Irvine.