Saving for College

I’ll be the first to admit that I’m a noob when it comes to figuring out how to invest money. I can budget with the best of them, and I can see a good deal when it’s staring me in the face, but once you talk about investing, all those numbers and letters just start to make my head swim. ETF? 529? Roth IRA? 401k? My general approach to date has been to throw my hands in the air and walk away. My job invests money in a 401k for me, and I’ve been content to just sort of Jedi-mind trick myself into thinking that was enough.

Of course, when you have a brother who’s a financial planner, sooner or later, he’s going to call you on it. He was kind enough to go over my financial state a few weeks ago, and one of the things that came to the surface was that I really ought to be putting money away for my kids for college.

Duh.

You’d figure that someone who works professionally for a university would be better at planning for that. You’d figure wrong. Well, that’s not entirely true. Denisa and I have been putting away money for our kids. We just have been doing what I did as a kid when growing up: sticking it all in a savings account.

Of course, when I looked at how much those savings accounts were actually making for my children (5 cents a month), I thought there might be something better out there. I was just too lazy to investigate.

The conversation with my brother got me motivated, however, and if you put a librarian on a question, we can ferret out the answer. It’s what we do. So I discovered all about 529 savings plans, and what my options were here in Maine. (You can buy a savings plan in any state, so you can shop around for a good one, but your home state might offer some special incentives for residents. My brother clued me in on that, and it’s a good thing he did.)

So what I’ve got here is for Maine residents specifically, but you can do some Googling to figure out the answers for you, should you not live in Maine.

It turns out there are some sweet incentives to Mainers. The Maine program is called the Nextgen program, and it’s administered by Merrill Lynch. If you want to open one, all you do is go to Merrill Lynch’s site and enroll there. Here’s what you can get if you do:

• When you open an account and deposit $25 into it, Maine will add $200 as part of a grant program. This is free money. I love free money.
• When you deposit up to $600 in one year, Maine will match 50% of it, again as part of a grant program. So you put in $600, and they give you $300. Again, yay for free money!
• When you sign up for automatic deposits of at least $25/month, and do that for 6 months, they’ll give you $100. Once again, part of a grant. Though this is a one time thing. It doesn’t give you that each year you do six automatic deposits or anything.

So in a nutshell, from here on out, if I put in $600 to that 529, then Uncle Sam puts in $300. Thumbs up from me.

But where exactly does all this money go? You have a choice of different options. Each one is a varied split of investments, and each one charges a servicing fee for them to keep track of it over the years for you. In other words, they take your money and invest some in various types of stocks and other investy things, and you don’t have to worry about it. It’s all diversified and designed to have your money grow, and for that service, you pay them a cut of the proceeds. I chose one with the cheapest servicing fees. Because I’m cheap.

Also, some of this stuff is good for taxes in some mystical way that I hope will one day make sense to me.

But the bottom line for me comes down to two things:

1. They’re giving me free money to put this money into these accounts for something I know I’m going to spend money on in the future.
2. This money should make money for my kids over time. More than 5 cents a month. Yes, there’s a risk it will lose money, but that risk is lessened because of the amount of time involved. TRC will be going to college in . . . 9 years, since he’s planning on serving a 2 year mission after high school. DC will be in college in 11 years. MC in 15 years or so. There’s plenty of time for these investments to pay off.

So that’s where I stand today. It was something that seemed very difficult going into it, and which I still don’t 100% understand, but was surprisingly easy to do once I really decided to make the leap. It helped that they gave me over $1,500 to do it.

Bribery will get you everywhere, my friends.

If you have any questions, I’m happy to muddle through the answers, but mainly this is a post to encourage those of you who might have been putting this off (like I was) to get out there and start getting it done.