Preparing for baby’s college bills with a 529 fund

Friday, May 9, 2008 | 10:00 a.m. CDT; updated 1:43 p.m. CDT, Friday, May 21, 2010

Editor’s note: Jake Sherlock and his wife, Jenny, celebrated the birth of their first child, Audrianna, on March 4. They’ve chosen to share the challenges and experiences of being first-time parents in this column. Look for it periodically in the Weekend Missourian and at

We’re not planning to be good Americans with the stimulus check we’re soon to receive from the federal government.

If we were good Americans, we’d go out and spend our check to help get the economy going again. Or at least that’s what the Washington politicians tell us we should do.

As much as we’d like to spend the money on something fun, like an iPhone or a new wardrobe, or on something we really need, like a tank of gas (the stimulus check should about cover it), or even to pay down some bills we already owe, like our new minivan, we’re going to do something more important.

We’re going to start a college fund for Audrianna. After all, how often does $1,200 fall into your lap?

Fortunately, we’re not alone in wanting to sock money away for Audrianna. Her great-grandmothers have sent money specifically earmarked for college, as have her great-aunt and my best friend’s family. She’s off to a great start, which is a family tradition of sorts.

Savings bonds were something I grew up with. My Grandpa Jerry, who passed away about 18 months ago, purchased two savings bonds for me every year, one for my birthday and one for Christmas. They weren’t as fun as GI Joe, but I sure did appreciate them when my tuition bills came due many years later.

Grandpa Jerry was an educator. He played college football for the University of Wyoming in the 1950s, including playing on the Gator Bowl-winning 1951 Cowboys team. After college, he gave up the chance to play professionally to put his education degree to work. He would go on to become a teacher, a principal and a coach. Two of his four children became teachers, and I eventually decided that education was in my blood too. At least one of his other grandchildren will likely go that route as well.

Because of Grandpa Jerry, I never had a doubt in my mind that I would attend college. It was just expected, and I believe I did him proud by earning a bachelor’s and a master’s degree from his alma mater.

As we were counting down the months to Audrianna’s arrival, I started thinking about the importance of getting a college fund started early. Grandpa Jerry wouldn’t have it any other way. But I was also fretting about other bills — we needed a new car to replace Jenny’s old Camry (hence the minivan), we will need to pay for day care, and we have our usual monthly bills to keep up on. How would I ever be able to make all that work on our budget?

Then the news came about the stimulus package. I was certain that was our ticket to at least getting something going. The additional money from our friends and family made me feel even better about making a big initial investment in our daughter’s future.

With nearly $1,500 to invest, I called up my old friend Jon Johnson, who operates the Edward Jones office in my hometown of Laramie, Wyo. Jon and his brother Randy have handled my dad’s investments for years, and he also oversees my retirement fund.

Jon’s advice: a 529 fund. The 529 is designed specifically for college savings, Jon explained. Simply put, if the money is used for tuition, books or other college expenditures, it won’t be taxed. It can also be used for trade schools.

If we try to take money out of the account before Audrianna is 18, we’ll pay taxes and penalties. If she opts not to attend school and pocket the money, she’d be responsible for the taxes on the earnings. But, because the parents own the fund and not the child, if she does decide not to go to school, we can withhold the money. I’m happy to save for educational purposes, but if she wants to follow a band for a year before she gets serious about life, that’s on her dime.

And, in the event that Audrianna earns a full-ride scholarship to college, we can transfer the account to the younger brother or sister we hope to have down the line.

The other benefit of the 529: Anyone who wants to donate to Audrianna’s future education may contribute up to $12,000 per year. And the more money we can get in there early, the better, Jon says. His example: If I could contribute $1,000 per year to the fund for 18 years at an 8 percent growth rate, she’d have about $37,400 available for college. But if we could sock that $18,000 into the fund now and let it grow for 18 years at the same percentage, she’d have $72,000 for books and tuition.

I sure hope this fund experiences a lot of growth. If you think tuition is expensive now, just imagine what it will be in 18 years.

Do you have experience with saving for your child’s college education? If so, please share your story with a comment below or by e-mailing me at

Jake Sherlock is a news editor at the Missourian.


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