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Giving the Gift of Education w/ ScholarShare #CASaves4College

by TerriAnn

53 percent [of California parents] said they are “very concerned” about their ability to pay for their children’s higher education. But just 43 percent of parents have a college savings account, while 56 percent do not. — Source: ScholarShare California Statewide Survey, 2012

My daughter is only 11 years old – way too young to start thinking about schooling after K-12, right? Last week, I found out just how totally and utterly wrong that thinking is. I was able to sit down with a group of local bloggers and representatives of ScholarShare for a timely discussion about the 529 plan and our kids’ education.

The what?
529 is the tax code (like 401) used to identify collected funds specifically designated for education. These savings plans are state-run and qualifying funds are tax-free. Each state’s 529 plan offers different options and fees so you can compare to see which is best for you and your family. The benefits and tax advantages are better explained here.

With who?
ScholarShare is “California’s 529 College Savings Plan”. You do NOT have to live in California to take advantage of this plan. The following information is based on my meeting with ScholarShare and the financial backing company, TIAA-CREFF, so it may not be universal for other state’s plans.

It works how?
Anyone can open an account for anyone else. A minimum of only $25 is needed and can be deducted directly from your paycheck. Similar to a money market account (at least that how I understood it), you can choose to have your funds invested in a low or high risk profile (19 options currently available) for a better return. Over the years, those small amounts can add up significantly to use toward college, community college, vocational school, studying abroad, textbooks, tuition, etc. If the named beneficiary does not use those funds, they can be transferred over to a sibling, a parent (maybe you need to brush up on a skill or two), or anyone else as long as it’s used for qualifying educational costs.

How is this a gift?
Instead of giving a child something they will forget about in a few months and discard for the next new thing, you can contribute to their 529 plan. Then, when they’re ready for extra education you can help relieve them of, at least partially, the financial burden of student loans. The sooner you start, the more you can save up. Others, such as family and friends, can also contribute to an using existing account with the “Gift of Education Certificate,” as long as they have the recipient’s account number.

How much does it cost?
There is no fee to open (except the initial deposit) or maintain an account. However, here are a few specifics found in ScholarShare’s new plans:

  • The minimum initial contribution to open an account is now only $25, down from $50 a year ago.
  • Under the revamped plan, fees will be reduced by approximately 30 percent, making ScholarShare one of the lowest cost 529 plans in the country.
  • The annual asset based management fees now range from 0.18 percent to 0.62 percent, vs. 0.25 percent to 1.06 percent with old plan.

ScholarShare’s website has a boatload of additional information including a thorough FAQ, an interactive comparison tool, and a Risk Tolerance Questionnaire. You can also use the android mobile app (iOS version is coming), College Savings Planner, allows you to keep track of your savings goals and figure out how to help meet them.

As this was my first introduction to the 529 plan and ScholarShare, the above is a summary of what I could get my head around. Yet, it makes so much sense to put a little away at a time and, thanks to the 529 plan. The whole time we were talking, I just kept asking myself, “How did I not know about this before?!”

We already put a little bit away for my daughter to use in the future but never looked into this option. I really like that this plan, however, does not allow the funds to automatically turn over to her at 18, giving her full reign of our carefully saved funds. Instead, we maintain control and funds are dedicated to educational costs only.

According to ScholarShare, “The more you save, the less you have to borrow.” I have a lot more research to do but it seems that giving her a 529 account with ScholarShare is not something I should delay. If you haven’t started one, why not check it out as soon as possible?

Dinner and a travel stipend was provided to me for attending the event. I am also being compensated for my participation in this campaign.

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