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I graduated with my bachelor’s degree in finance. During my time in college, I was discouraged because I was not being taught the skills that would help me become a successful financial advisor. It often felt like I was chasing something that never materialized. For decades, earning a college degree has been seen as a prestigious achievement. Recently, however, that perception has started to shift. Many people grew up believing that you have to attend college to be successful. Is that still true? Do high-end jobs still require a college degree?
The Role of 529 Plans
One of the most common financial tools for funding education is the 529 plan. I often discuss what type of investment account someone should set up for their kids or grandkids. For those that encourage college education, a 529 plan is the best route. The money invested grows and is taken out tax-free as long as it is used for higher education. It could be for college, trade school, beauty school, vet school, etc. The more I have this conversation, the more I realize how uncertain people are about whether college will be worth it for their children or grandchildren. The good news about a 529 is that if the account beneficiary elects to not attend some form of higher education, the balance can be transferred to someone else who plans to attend school. There is also a newer rule where a 529 can be transferred to a Roth IRA when following certain limitations.
There are compelling arguments both for helping children with college expenses and for encouraging them to pay their own way. College is one of the most significant financial commitments one can make. Contributing to a child’s college education can significantly improve their future opportunities. Investing just $1,000 at the time of birth in the S&P 500 and adding $100 a month until the child turns 18 can grow to an estimated $66,000 by the time they are ready to attend college (based on average historical returns). For some schools, that would cover all four years. For others, it may only cover one year. Someone entering adulthood without student loans is a major advantage to them.