Why I Regret Starting a 529 Plan for My Kids

why-not-to-save-in-a-529-plan

Let’s be clear: I don’t regret saving for the kids’ future. I regret limiting that fund for college.

Like many young parents, Mark and I were anxious to start saving for college. A 529 plan was the no-brainer option at the time. The fund grows tax-free and as long as the money is used for a “qualified education expense”, the interest is never taxed. There can also be state tax deductions for contributions.

So, here’s why I regret saving in a 529: There are so many valuable and practical ways to learn outside of college that can’t be funded by a 529 without paying taxes and penalties on the interest.

Nineteen years ago (the year Hannah was born), college appeared to be the only and best way to have a career and wasn’t nearly as expensive. In 1996, 52% of Bachelor’s degree recipients carried student loans averaging $12,000 (which is the same amount I graduated from college with in 1990). Today, at least 71% of college graduates have student loans averaging $37,000.

In contrast to the 1990s, high school students can begin to teach themselves skills that add value to a fast-paced, global economy. College is required for some professions (academia, law, medicine) but isn’t for many others.

Apprenticeship programs, gap years, online certification programs, fellowships, world travel and small business opportunities are all valuable and practical alternatives to college that can’t be paid for with 529 funds without penalty.

[tweetthis display_mode=”box”]529s are a subsidy for institutions that are overcharging and under-delivering.[/tweetthis]  They’re one form of university welfare. The other forms are private loans, grants and government-subsidized loans. Students aren’t really the beneficiaries of these forms of assistance when a degree doesn’t guarantee a job or skills that employers say are lacking in most college graduates. (Don’t believe me, read this book about the skills gap).

Hannah graduated from high school and has no plans to attend college. Instead, she’s participating in a program that matches highly motivated young people with a small business or startup willing to train them.

Praxis charges tuition but boasts a net-zero cost because the total payment is less than the guaranteed pay the participant receives from the business partner during the apprenticeship. In addition to skills training, Praxis offers one-on-one mentorship, weekly group discussions and guidance on personal and professional development projects. Every participant has a tangible body of work to show potential employers at the conclusion of the program. The Praxis model has been so effective that business partners now commit to a full-time offer with a minimum salary of $40,000 for participants. No college will guarantee that.

By the time her classmates graduate, Hannah will likely have saved as much or more than they have borrowed in the same time period. She’ll be earning as much or more and she’ll likely be living on her own. Compared to other 18-34-year-olds, who, for the first time ever, are living with parents more than any other living arrangement.

So, what to do with all that money we saved for college? We could transfer the 529 to one of Hannah’s siblings.  We put that money aside for Hannah, though, and frankly, I’d rather see it go to photo equipment (Hannah’s business), studio space, even a car, than an over-priced college.

Even though she’ll pay taxes (at her rate) and a 10% penalty on the interest, we’ve decided to use the money in Hannah’s 529 plan to pay the tuition for Praxis. The interest and penalty combined don’t compare to the interest that most students will end up paying for the lifetime of the loans they’re taking.

I’m not so put-off by the taxes owed because if we had it in any other type of fund, we would have been paying taxes on the interest all along. The penalty stings a little since she’s using the money for a program that has a guaranteed ROI and is tens of thousands less than college would have been.

Hopefully, 529 rules will expand with growing opportunities in our rapidly-changing world that make more sense than college. Any changes will likely come too slowly to help my children.

I’m not sure what will happen when the college bubble finally pops. Likely, even those who opt out will be stuck holding the bag. University Provosts everywhere will continue to receive their bloated salaries or maybe they’ll run for the hills taking their golden parachutes with them.

Rethink opening that 529. There are other ways to save in a high-growth fund for a minor. You can still use that money for college but you’ll have other options.

Opting Out of the Awful School Pictures

 

school-pictures

4th grade me with my Dorothy Hammill haircut

I’ve had it. I used to feel guilty that my kids didn’t have school pictures since they were homeschooled.

This year, I’m opting out.

I’ve purchased a “package” for each of the kids for each of the years that they have been in school. I never display them. I rarely share them. They sit in the cellophane window envelope in a drawer somewhere.

To be perfectly honest, none of them are any good. Not one school picture actually looks like the kid in it. Bad smile, pasty face, awkward angle. They are just bad.

The photo packages are too expensive and they’re purposely designed to NOT include the sizes you might want.

I thought Mark would be offended that I didn’t want to buy them this year but then forgot that he’s a boy and doesn’t care about stuff like that. I knew Kate wouldn’t care. The only year she let me buy photos, she wouldn’t let me see them. She wasn’t interested in doubling down on her humiliation by getting the “retake”.

 

 

 

 

 

In Sickness & In Health

wedding

So, Mark and I are celebrating our 23rd anniversary today. Just shy of 3 weeks after his physical catastrophe.

I’m not an overly emotional or sentimental person but I clearly remember my voice cracking only once during our vows…”in sickness and in health”. In an instant, I was overwhelmed by the thought of him being sick and vulnerable.

He’s had some minor surgeries (that dual hernia operation just before our 10th anniversary wasn’t too fun) but nothing as challenging as this.

The thing is, as challenging as this is physically, emotionally and probably financially, I know it isn’t even close to the worst that can happen to a couple. Not even close.

So I’m thankful that we work well together because just about everything he does, we do together. I’m thankful that we enjoy each other’s company (as long as he doesn’t try to tell jokes). I’m thankful that we trust each other to get through this. And yes, I’m thankful that we love and trust each other and even on our worst days, there still isn’t anyone I would rather spend time with (no offense to my children, who come second in that category).

I don’t feel all that much different than that day 23 years ago. Marrying Mark felt like the rightest, most natural thing. Helping him do just about everything feels just as right and natural (though, I have to keep reminding him the kids can fetch the this or the that when they’re here).

Happy Anniversary. Oh and Happy Birthday to Luke who was our 5th anniversary gift!

Crisis Mode

hospital-room

I WISH Mark’s room had a desk like that!

Mark blew out both knees last week. He’s a full-time tennis teaching pro. Yes, that’s his real job.

Truth be told, I can’t believe something like this hasn’t happened before this. He really wasn’t doing anything nutty or risky. He’s pretty conservative because his joints have always ached. He dislocated both shoulders before he graduated from college. Plus, teaching on a hard surface 8-10 hours a day for 30 years might lead to some wear-and-tear.

Here’s how I react to crisis:

My brain goes into hyper-efficiency lock-down. Do the bare minimum. Prune the unimportant, take care of only what’s necessary. The kids are at an age where they’re pretty self-sufficient and can help each other get where they need to go. I also have lots of family and good friends around who can help. (S/O to my brother John who took care of details at home when it happened).

The other thing my brain does which makes me hopeful and positive is to think about how much worse things could have been. In a weird, backwards way, it helps me be grateful even in what seems like a catastrophe.

Here’s what I’m talking about:

  1. Mark had just returned from taking Luke to a tournament in Boston. He easily could have been walking fast or running for a flight and this could have happened. I can’t imagine how traumatized Luke would have been on top of managing this type of crisis long distance.
  2. I’m glad it happened at work because…worker’s comp.
  3. I’m grateful I don’t have the stress of managing a job outside the house on top of this.
  4. I’m grateful I didn’t get the car crash call or the heart-attack-on-the-court call.
  5. My mom can care for my aunt at her house while we get our bearings again. That means Mark has a hospital bed and a bathroom on the first floor because he won’t be able to bear weight on either leg for a while. My brain hasn’t quite caught up to that concept but we’ll deal with it.
  6. Mark ran up to our cabin by himself the weekend before this happened to take care of some things. It’s remote and even if he remembers to take his phone with him, reception is sketchy. The nearest neighbor is not visible through the woods. Shudder.
  7. Most surgeons haven’t seen a bilateral rupture of this type but it is repairable and they’re confident that he will be better than he ever was.

So, that’s how my brain works. You might think it’s pathetic denial but I’m sticking with it. It has given me a better outlook on what’s ahead.