July 19, 2018
Consider this: Putting a child through four years of school at a top-rated state university could easily end up costing more than $80,000, including tuition, fees and room and board. For a private college, you're looking at well over six figures.
Many students will get some financial assistance that brings the cost down. A very small percentage will get a full ride.
But when students don't get enough need-based or merit scholarships and grants, they turn to debt to get a degree. Outstanding student-loan debt was $1.4 trillion as of the first quarter of 2018, according to the Federal Reserve Bank of New York.
One way families can reduce the need to borrow is to save in a 529 plan. Earnings are not taxed as long as withdrawals are used for qualified educational expenses. Additionally, many states offer tax deductions for residents who make contributions to a 529.
Maryland residents Jasmine and Herbert Ruffin Jr. are expecting twins this month (a boy and a girl!). They've already set up two 529 plans, one for each baby. For now, the couple has put the accounts in their own names, because a beneficiary has to have a Social Security number. Once the twins are born, the Ruffins plan to switch out their names for their children's.
"I feel like it has been a blessing having the accounts set up," Herbert Ruffin said. "Just thinking that we started these accounts with our children's future in mind and this may be able to help them toward their college education."
The Ruffins have also created contribution pages for the twins through Maryland's 529 plan administered by T. Rowe Price.
Like most other states and the District of Columbia, T. Rowe Price has made it easy for people to make gift donations to a 529.
The company's "GoTuition" gifting portal allows family and friends to make electronic contributions. Accountholders can set up a profile page and then they can share a custom URL through various social-media channels or by sending an email or text message.
Instead of buying a toy that may soon be broken or clothes they will eventually outgrow, contributions to a college fund can have a long-term impact. I asked T. Rowe Price to punch in some numbers to see how much a one-time cash gift to a 529 might grow. If you gave just $25 and it was invested for 18 years with a 6 percent return, that's potentially $775 (not adjusted for inflation). That's enough to help pay for some college books, reducing the need to borrow.
For very generous relatives and friends, here are the approximate ending values for 18 years of the following monthly contributions, again assuming a 6 percent return, according to estimates by T. Rowe Price:
-- $100: $39,000
-- $125: $48,000
-- $150: $58,000
-- $200: $77,000
-- $250: $97,000
I'm generally not a fan of how gift giving has evolved. I loathe seeing a note in a wedding invitation telling invitees that cash is the couple's preferred present. The same goes for monetary requests for a baby shower. Your life events should not be treated as fundraising opportunities.
Having said that, I'm not opposed to a 529-plan gift page when the purpose is to address the one question close friends and family often ask: "What do they need?"
Here's my one guideline for letting people know that you've set up a college savings plan: Don't ask them to contribute.
Don't put a note in a party invitation asking for money for your child's college fund. Don't universally share the gift page's URL. If pressed by those closest to you -- a grandparent, aunt, uncle or longtime family friend -- then, yes, you can pass on the college fund information.
Syndicated etiquette columnist Judith Martin, also known as "Miss Manners," does not approve of specific gift solicitations.
The "charming custom of exchanging presents is deteriorating into simply paying people by the milestone," Martin wrote in a column. "However, if everyone is happy with the pay-as-they-go system, it is not for Miss Manners to interfere. Goodness knows it is entirely outside the realm of etiquette."
It wasn't the Ruffins' idea to set up a gift page for the twins. The couple was part of a marriage and money course I teach with my husband at our church. After spending 12 weeks together learning how to be money-smart, their classmates wanted to give them something meaningful for the babies. They ended up collecting $240 ($120 for each baby), which the Ruffins used to open the 529 accounts.
"I'm all for being practical with gifts that will benefit in the long run," Jasmine Ruffin said.
With the cost of college so financially crippling for many families, it's OK to want to help. Just don't turn your need into a panhandling situation.