Back to school means it’s time to invest in a 529 plan

If you are like most people saving for college is a daunting task and financially it seems overwhelming to even get started. However, the good news, time is on your side if you start early enough. As we say in the investment business, it is not timing the market that makes you a successful investor but time in the market that does. The same can be said about investing in a 529 plan.

According to the SEC’s Office of Investor Education and Advocacy, a 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. Legally known as “qualified tuition plans” 529 plans are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

Why Invest in A Plan Instead of Saving on Your Own?

Quite frankly, most people do not have the time, skill or ability to save on their own. If you can set up a monthly deposit into a 529 plan that is best, because you are automatically saving a certain amount every single month and depending on what you invest in, you are effectively dollar cost averaging into the stock market and buying when prices could be down.

Pre-Paid Plans vs. Traditional 529 Plans

If you know for certain you want your child to attend a specific state school or your alma mater then you can use a 529 Plan to pay the tuition up front. The reason for this is to lock in a set price and eliminate all the tuition increases until your child attends this specific school. In the past this would have saved thousands of dollars because of annual tuition increases every year. The downside is flexibility. What if your child wants to go out of state or decides they do not like your alma mater and decides to attend another college, but they do not offer the pre-paid option?

State Plan vs. Out of State Plan

One of the best things about investing in a state-sponsored 529 plan is the tax advantage that goes with it. In Colorado, for example, you get the 4.63% state tax exemption for the amount you invest in Colorado’s CollegeInvest 529 Plan. If you have good investment choices in your state plan there is absolutely no reason not to. Typically, you will have age-based plans or index funds as investment choices, which means most states will have similar options and investment returns.

Child’s Age and Risk Profile

The younger your child is when you enroll in a plan the more aggressive you should be in your investment selections. This is when a few bear markets can work to your advantage. If you are starting to invest when your child is born you will have 18 years until they go to college. If you are investing every single month, then bear markets will allow you to accumulate even more than during up or bull markets. However, when your child reaches age 17 it makes sense to get more cautious and move your investments in the plan to the most conservative investment option like a fixed annuity or a short-term bond vehicle. No reason to take on stock market risk at that stage in the game since you will need the money in just a year.

529 Plan Alternatives

Another option for college savings is to open a custodial account that your child has access to at 21 years of age. The problem with this is taxes and control. You will owe taxes on any capital gains or income generated by the custodial account and most likely have to file a separate tax return.

With a 529 plan, all capital gains and income generated by the investments grow tax free. The other issue is control at age 21. Your child gets the money/investments at age 21 whether you want them to or not. What is to stop them from spending the money or selling all the investments and buying a new car or taking an expensive vacation? The account is in their name and can do whatever they please the funds.

College may seem like a long way off when your child is born but with the cost of college rising consistently over the rate of inflation every year you can never start soon enough. Fortunately, we live in Colorado where I think we have one of the best 529 Plans in the country, with great investment choices, low fees, and excellent service.

Fred Taylor serves as Vice Chair of CollegeInvest, the nonprofit board of Colorado’s 529 plan. Disclosures: Above material is for information and education purposes only. Past performance is no guarantee of future returns. All investing involves the risk of permanent losses, and there are no assurances that any level of distributions can be supported by a portfolio. Consult your individual advisor for guidance specific to your circumstances.

Learning New Skills for the New Normal

As of June 2020, the Bureau of Labor Statistics indicated that the United States’ unemployment rate was 11.1 percent. That’s higher than during the height of the Great Recession (10.6 percent) and at the peak of the ’80s recession in 1982 (10.8 percent).

Though these numbers represent a huge improvement over the previous month, 17.8 million people are unemployed, including restaurant and hotel employees, retail staff, people who support the sports, travel and entertainment sectors, oil and petroleum workers, software developers, writers, higher education administrators, and this doesn’t even begin to tally up the losses for gig workers.

Though the US government approved the mighty $2-plus trillion CARES Act to shore up the economy, a measure that put $1,200 in every wallet, the coronavirus continues to rage across the country and the federal government’s $600 unemployment enhancements expired in late July.

For those who have lost jobs, experienced furloughs or seen pay reductions, the pandemic represents a chance to not only adapt to the new normal but also retool what you have to offer. Were you stuck in a low-wage job? Is there another career you’ve wanted to pursue? Who might be hiring in the pandemic/post-pandemic job market? Do you need new skills for this brave new world that’s coming?

Historically, when recessions hit, people tend to return to school. That’s because the opportunity cost—the jobs and earnings you give up while in school—plummets, making education more attractive. A certificate or new degree can add shine to your resume and position you for a career do over.

Nobody knows what the job market will look like in the aftermath of the coronavirus, but if you find yourself recently unemployed, now might be a good time to reconsider your education, especially if you have a clear goal in sight and can achieve your goal without incurring too much debt.

Because of the pandemic, colleges and universities recognize that prospective students’ financial situations may have changed. “Even now, people should be able to accomplish their educational goals,” observes Mj Huebner, the vice president for admission and financial aid at Kalamazoo College and veteran enrollment management consultant. “Talk to a financial aid counselor. Colleges and universities have really tried to understand individual family circumstances as they relate to unexpected COVID expenses. Colleges and universities have also tried to make changes to allow for a more seamless and easier going-to-college process.”

Depending on what you want to accomplish, community colleges and career and technical institutions can offer lower-cost—and quicker—alternatives to traditional four-year colleges and universities. Should you want to become a medical doctor, you can certainly start at a community college, which can lower your overall costs, but you’ll finish in medical school—six or seven years down the line. If you want to become a pharmacy technician—a hot degree if ever there was one in our nation’s hot zones—you can earn a certificate in an accredited program and begin practicing in less than a year.

At Emily Griffith Technical College in Denver, educators have moved most courses online or created hybridized models of in-person and online models for programs such as automotive, welding and cosmetology that require hands-on instruction. The college also continues to offer programs in technology and healthcare to prepare students for post-coronavirus workforce trends they’re already noticing.

“The widespread telehealth and work-at-home phenomena are likely to continue,” says Stephanie Donner, executive director at Emily Griffith Technical College. “So jobs that support home-based workers and healthcare should be in high demand. Think software developers, network administrators, cyber security professionals and training help. And clearly there’s a huge need for additional healthcare workers and domestic manufacturing capacity to scale medical products and equipment.”

To that end the college recently launched the online Google IT Support Professional Certificate to add to programs they already offer in computer networking, cybersecurity, web development, multimedia and video production along with healthcare opportunities such as practical nursing, phlebotomy, pharmacy technician and targeted trades.

“These programs and others that we offer can help displaced workers prepare for the future,” Donner explains. “Emily Griffith is here to help people reenergize their careers and return to work re-skilled and ready to contribute to a new Colorado.”

Leslie Petrovski is a freelance writer supporting Emily Griffith Technical College.