Funding Your Child’s 529 College Savings Plan

by Elizabeth on June 11, 2012 · 4 comments

“This is pointless,” a friend whispered to me during a recent college savings seminar at our church. “I don’t have enough extra money in my budget to put money in my retirement account, let alone his college fund.”

I sympathized with my friend’s plight. After all, personal finance 101 tells us to fund our retirement accounts before putting money aside in our kid’s college savings plan. But you don’t have to have tons of extra cash on hand to start a 529 for your child. Here’s how my husband and I are doing it on a limited budget.

Start Small

Most 529 plans out there don’t require you to make a minimum deposit to start the account. In fact, I started my daughter’s account – New Jersey’s 529 plan, an account I opened through Edward Jones – with nothing in it.

Grow Gradually

My husband and I opened my daughter’s 529 two weeks after I left my full-time job to work as a freelancer. It wasn’t a great time for us financially, as our income had just dropped by about 40 percent. Still, I felt it was important to put whatever excess cash we had into retirement accounts for us and a college savings plan for her. When our financial planner asked us how much we could afford to put into the account every month, I was embarrassed to tell her we could only manage $25. Sensing my shame, our CFP assured us that every little bit helps. An investment calculator proved it: even if my daughter’s 529 only sees a moderate six percent return, I’ll still be able to nearly double my investment and send her off to college with $8,000 she wouldn’t otherwise have.

Find Unique Ways To Grow Your Investment

How many times have you been walking down the street and seen a penny (or a quarter, or even a dollar) on the ground and stopped to pick it up, thinking “This must be my lucky day”? Now, how many times have you actually done something useful with that found cash?

I realized that my husband and I were wasting this “found” money on unnecessary things. If a grandparent sent my daughter $50 for her birthday, I used it to buy her a new toy – which she didn’t need. If her Godfather sent her $25 for Christmas, I’d use it to buy her clothes – again, something she didn’t need. I started wondering exactly how much money I was wasting by buying her unnecessary items.

So last year, I put every dime she received for birthday, Easter, and Christmas gifts into her 529. That amounted to:

  • $250 in birthday money from her grandparents, godparents, aunts, uncles, and great-grandmother
  • $50 in Easter money from her grandparents
  • $200 in Christmas money from her various relatives

Additionally, I also decided to put any money I made by selling her old clothes and toys at consignment sales into her 529 plan. In 2011, I contributed an extra $178. By the time the year ended, I had contributed an extra $678 to my daughter’s college savings plan, on top of the $300 in monthly contributions I make automatically from my checking account.

Look For Perks

Not all 529 plans are created equal. Even though my family and I don’t live in New Jersey, we opted to go with that state’s 529 because it showed some of the best returns historically. However, that means my contributions aren’t tax deductible, since I didn’t make them to my home state’s 529 plan.

But my plan does come with perks. Because I’m investing at least $25 a month automatically into my daughter’s college fund, I don’t have to pay any maintenance fees on the account – which means every dollar I put into it is helping to fund her future, not pay some brokerage firm big-wig.

Reader, what are your tricks to funding your children’s 529 plans?

{ 2 comments… read them below or add one }

1 gerald June 11, 2012 at 8:15 am

Doesn’t the tax deduction make it better whatever the rate you may get in another state?


2 Roshawn @ Watson Inc June 14, 2012 at 7:21 pm

Great point. People often think that it takes so much to invest, not realizing that most of what you have at the end is compounded anyway if you start early. I think if people are very strategic about their savings, investing, debt, and career (& maybe a little ambitious too), they can definitely fully-fund this, provided that they have a reasonable income.


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