Skip To Content

    I Just Opened A College Savings Account For My Daughter, And This Is Everything I Learned In The Process

    If I'm honest, I didn't get everything I wanted.

    I'm a big believer that graduating from college without any (or very little) debt is one of the best gifts you can give someone.

    So after my daughter was born, I started thinking about what I could do now to help her out in 17-plus years.

    I had three things on my savings wish list: 1) the ability to auto-contribute each month, 2) a good interest rate, and 3) the flexibility to do what I wanted with the money.

    In the end, I opened a 529 college savings account, which met two of my three requirements. Here's why a 529 is great, why it's not so great, and what I've learned from the process:

    1.) βœ… 

    2.) βœ… 

    3.) 🚫 

    1. A 529 plan is basically a tax-free investment account that's designed to cover education costs.

    Mother and child holding a piggy bank

    2. Every state has its own 529 plan or plans, and most of the time, you don't have to live in the state to access them. For example, if you live in Iowa, you can still apply for a 529 plan in New York.

    Woman looking at documents on her computer

    3. That said, you may get extra perks by being a state resident. That's how it is in Colorado, where I live.

    4. The money I save with CollegeInvest can be used at colleges and universities all over the world.

    Woman with backpack on in Europe

    5. But it can't be used for K–12 tuition expenses.

    Woman teaching a small group of young people

    6. Friends and family can also contribute to your 529 (or they can start their own for your kid).

    7. There are a lot of investment options within each 529 plan. I went for an age-based option so I wouldn't have to manually make changes down the road.

    Woman puts up her feet in her apartment

    8. It's worth noting that there are fees associated with a 529 college savings plan.

    Man looking at papers at his desk

    9. Here's the kicker: If I need to withdraw the money for something that's not education-related, I'll have to pay taxes on the account's earnings and face an additional penalty.

    10. And if my daughter decided not to attend college (or gets a hefty scholarship), I'd want to change the beneficiary to someone else β€” someone who would be attending an educational program or school.

    Man in college smiling at the camera

    11. Long story short, the biggest benefit of a 529 plan is the lack of taxes and the state tax deductions β€” but you have to truly believe that your kid (or someone else in your circle) will be interested in some sort of postsecondary education.

    Students in a classroom

    12. It's also worth noting that you should take some time to poke around on the 529 plan's website. There are programs to help first-time savers and low- to middle-income families.

    13. And as a little disclaimer, investment returns are not guaranteed, and you could lose money, including the money you put in.

    Little boy making a face

    Have any tips to offer a college savings first-timer like me?