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At what age should I start a 529 savings plan for my newborn?


There’s no time like the present to start saving for college, which is what 529 plans allow parents to do in a tax-advantaged way. With the cost of a higher education rising at between two and three times the general rate of inflation by some estimates, and with the interest rates charged on student loans rising, too, it’s almost imperative that you start saving right away in order to make the financial burden of college as manageable as possible when the time comes.

An illustration of simple arithmetic should also encourage you not to procrastinate. If you kick in $200 a month to a 529 plan starting the day your child is born and it earns an annual return of 8 percent, the account will grow to nearly $97,000 on his or her 18th birthday. But say you wait until your child is 5 and heading off to kindergarten. By saving for 13 years instead of 18, you will have put away only about $55,000, barely half as much. That’s because those additional five years’ worth of contributions will not have been made, of course, but also because the investment returns that those contributions would have earned for a further 13 to 18 years will have been foregone, too. To put it another way, you would have to save about $350 a month for 13 years to accumulate the same $97,000 that could have been saved with $200 monthly contributions over 18 years. You’ll have your hands full, literally and figuratively, with your newborn, but if you have the time and the money, you should set up a 529 plan as soon as possible.

-Conrad de Aenlle