Instead of a baby registry, I set up a 529 account for my baby's college tuition and asked people to fund it
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Jen Glantz
- When I had my baby, I bought all the must-have items I needed myself.
- My friends and family asked for a baby registry — instead, I asked for contributions to a 529 plan.
- No matter what form my baby's education costs take, the money in the 529 plan will be valuable.
Toward the end of my pregnancy, I had friends and family reaching out asking me to share a baby registry. By that point, I had already purchased all of the must-have items that I needed myself. I spent around $2,000 on a crib, a stroller, clothing, toys, and diapers. I felt pressured to send people a registry, but when I went to make one I found myself adding items that I didn't think the baby would actually need.
Instead of stocking our small apartment with nice-to-have purchases, I decided to take a different route. I told friends and family members that once the baby was born, I was going to open up a 529 account that they could choose to fund.
A 529 plan is a tax-advantaged savings plan that allows people to start saving now for future education costs. At the time of use, funds can be withdrawn tax-free to cover college expenses. Having a plan like this will benefit my baby when she's older. Here are three ways a 529 plan is setting her up for future financial success.
1. A 529 plan covers different types of education
The main reason I decided to set up a 529 plan is to help fund my child's college experience. The money can be used for costs like college tuition, room and board, books, and other supplies. However, the money doesn't just have to be used to pay for a university. The money can also be used to pay for private schools during K-12 years or an apprenticeship program if she decides to go a different route other than getting a degree.
Plus if for any reason she needs to take out student loans, the money inside the 529 can be used to pay off student loan debt in the future, up to $10,000.
2. The account benefits from compound interest
I want to make sure that when I need to fund my child's education, I have the money ready to go. A major benefit of keeping cash inside a 529 plan is that the money benefits from compound interest.
Since I plan to put money into the account every month and ask for bigger family contributions on her birthday every year, the money will continue to grow because of a varying interest, which will compound year after year and hopefully more than double by the time she's 18.
3. The money can be used to help fund retirement
If the account is open for more than 15 years and the money isn't needed for education, the funds can be rolled over into a Roth IRA used by the accounts' beneficiary.
Roth IRAs are retirement accounts that offer tax-free investment growth. Starting in 2024, people are allowed to rollover money from a 529 plan into a Roth IRA. There is a $35,000 limit and the Roth IRA must be in the 529 plan beneficiary's name.
Having this as an option allows my child to already have an early way to start planning and saving for retirement.