Best time to start saving for education? At birth

Feb. 09--Have children and a spare $250 a month lying around? Per kid?

Then you are well poised to start saving for a four-year, in-state public university.

If not, start saving anyway, say experts in college financing.

"Every dollar you save will be a dollar less than you'll have to borrow," said Mark Kantrowitz, publisher of Cappex.com, a website dedicated to college savings and admissions. "And every dollar you borrow will cost $2 to pay it back."

Mr. Kantrowitz, who recently moved from Cranberry to Illinois, recommends that from birth, parents should save $250 per month for an in-state public college, $400 for an out-of-state public college and $500 per month for a private four-year college, per child.

Given that those figures are wildly unrealistic for many families, he recommends saving anything at all, ideally through a monthly contribution that automatically transfers from a bank account. When money frees up -- a child graduates from diapers, for example, or a parent gets a raise, he advises using that extra money toward college savings.

As for when parents should start saving, "I tell people, 'At birth,'" said Young Boozer, chair of the College Savings Plan Network and state treasurer of Alabama. "If you don't do it at birth, the next best time is today."

When they save for a longer period of time, parents don't have to put away as much per month.

They also reap the benefits of interest accumulation and, ideally, a growing stock market.

"My father used to tell me that compound interest was the eighth wonder of the world," said Mr. Boozer.

Most experts advise that the best way to save for college is through a state 529 plan. Earnings on contributions in the plans grow tax free, and many states, including Pennsylvania, allow the contributions to be deducted from state income taxes. Money saved in the plan must be used for post-secondary educational expenses including tuition, room and board and required technology costs, and can be switched around between family members.

Pennsylvania offers two options for its 529 plan: a traditional investment option and a guaranteed savings plan that allows users to purchase credits at today's prices at five different tuition levels.

"A 529 account is the best way to save for a child or grandchild's college. Period. End of Sentence," said Mr. Boozer. There is no other financial vehicle out there that gives you that type of flexibility and that type of tax advantage."

That said, most parents don't have them.

Just over 5 percent of children under 18 in Pennsylvania have an in-state 529 plan opened in their name, according to data from the Pennsylvania Treasury, though some Pennsylvania minors may have 529 accounts in their names in other states. Nationwide, the numbers range between 1 percent and 10 percent, said Mr. Boozer.

While participation is low, the numbers are growing. The College Savings Plan Network reports that there were $266.2 billion in assets in 529 plans nationwide last year, up from $164.9 billion in 2011.

"Just get started as quickly as possible," Mr. Kantrowitz said. "Your greatest asset is time."

Anya Sostek: [email protected] or 412-263-1308.

___

(c)2017 the Pittsburgh Post-Gazette

Visit the Pittsburgh Post-Gazette at www.post-gazette.com

Distributed by Tribune Content Agency, LLC.