The ridiculous and continuously rising cost of college tuition has parents so paranoid that some are asking if they can open a 529 college savings plan for their unborn children?
You may be surprised to learn that the answer is “Yes.”
Even if you don’t yet have a child, you can open a 529 plan using your own social security number and switch the beneficiary to your child after he or she is born.
But the bigger question is SHOULD you do this? And to that question, I would answer “Absolutely NOT.”
Putting aside the obvious fact that you have no guarantees that you’ll actually HAVE said child, I believe there’s even a more foundational reason than this.
Don’t Save a Penny Towards Your Child’s College Until You’ve…
It is my personal, strong opinion that you should not save for your child’s college at all until after you’ve completed several other financial goals, which we discuss below:
1. You’ve fully-funded your emergency fund.
What does a fully-funded emergency fund look like? Depending on who you ask, an emergency fund should have enough money to last you 6-12 months without an income.
If you are still in a situation where you’re living paycheck to paycheck, then getting $1,000 in your savings account may be a better short-term goal.
Then, once you’ve hit that goal, you can move on to begin working on getting your emergency fund fully-funded.
2. You’ve maxed out your retirement accounts (Traditional or Roth IRA).
In 2019, the annual contribution limit for IRAs has been raised for the first time since 2013. It has gone up $500 from $5,500 to $6,000.
If you are wondering which type of retirement account would be best for your situation, check out the links below to our 2-part guide comparing the pros and cons of the Roth and Traditional IRA.
3. You’ve maxed out your 401k.
As you can see below, the maximum annual 401k contribution limit has continued to rise each of the last 3 years:
- 2017: $18,000
- 2018: $18,500
- 2019: $19,000
There is tremendous opportunity here. And while I don’t typically prefer 401ks to individual retirement accounts, if you’ve already maxed out your IRA, then, by all means, take advantage of your company’s 401k as well.
One other important note: if your company offers a match on your 401k, then this should be the first place that you pour retirement money into.
The reason why I advise against 401ks, in general, is because they typically have higher account fees. But even the lower account fees of an individual IRA held with a discount stock broker can’t compare to the benefits of a 401k employer match.
4. Maxed out your HSA.
Yes, I know by now you think I’m really crazy. But HSA’s are one of the coolest retirement savings vehicles on the planet!
And if you happen to have one and you also happen to have extra money laying around, I’d rather you max out your HSA before pouring money into a college savings fund.
Ok, now that you think I’m an absolute lunatic, let’s address the elephant in the room.
But That’s Sounds Ridiculously Harsh and Kind of Crazy!
You can’t get a scholarship for your retirement…but your child could get a scholarship to help offset their college tuition.
- Apply for state-funded grants
- Go to a community or state college
- Work while in college
And that’s really just touching the tip of the iceberg. In our Complete Guide to Graduating Without Student Loans, we cover 14 different strategies to help college students avoid debt.
Take it from someone who graduated debt free from a private 4-year university without any help from his parents — it can be done! It just takes some planning and a little bit of hard work.
Conclusion:
Putting your own financial security as your first priority in life doesn’t make you a bad parent – it just makes you a responsible human being.
I know it sounds heartless (especially in a society where it’s considered a given that you should be saving for child’s college), but you need to make sure that you are hitting all of your key financial goals before focusing on college savings.
And if you still have money left over after hitting all your personal financial goals, feel free to put it towards your child’s education! Although, I would still recommend waiting until they’re born…but that’s just me.