CEO at EvoShare, the only cash-back solution that converts your daily expenses into additional retirement savings.
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Now, I’m a fintech CEO with a degree in physics, so I thought I should be able to figure out what kind of account would be the best vehicle for my children’s educational savings. What I found was a confusing mess of different programs, obscure rules and uneven rewards for encouraging saving. There’s got to be a better way, I thought to myself. Or if there isn’t, then this field is ripe for disruption. As it turns out, I wasn’t the only one who thought this cobbled-together system of college savings plans needed innovation.
The Promise And Challenges Of 529 Plans
How can parents make good decisions now that will provide a comfortably ample source of funds for their children’s future? The 529 college savings account was supposed to be the answer. The accounts, administered at the state level, allow parents to invest money to be used for educational expenses with certain tax advantages. The investment options, costs and tax implications of 529 accounts vary by state, but families are not restricted to using the program their state offers. While these accounts were designed to help parents prepare for the cost of higher education, there are a lot of considerations for families to weigh when deciding to take advantage of this savings vehicle.
In addition to the changing nature of education that parents across the country were thrust into during the pandemic, there are ongoing shifts in the perspectives of families looking to prepare for the cost of higher education.
According to the 2021 College Savings and Student Debt Study published by Fidelity Investments, 60% of college-bound high schoolers said the pandemic has changed how they view higher education. The research also found that parents are increasingly willing to prioritize helping their children pay for college over their own financial wellness.
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In addition to the changing preferences of parents, there’s a lack of understanding of the need for, and power of, 529 programs. The nuances compound when families have so many options to consider, such as plans from each state, the investment options available in each program and the tax advantages of each. It’s a lot to research, yet many parents aren’t aware that 529 plans exist.
According to Fidelity, its studies have “consistently shown saving in a dedicated account like a 529 is correlated with better outcomes and higher likelihood of meeting college savings goals.” Simple steps such as saving where you’re spending by using a rewards program that earns cash back toward a college savings account could also help families contribute to 529 plans.
Technology Also Key
Adding to the challenge is the 529 plan industry itself. It has remained slow to change and restrictive, rather than welcoming, to the lower-income families 529 plans were created to serve. It can be difficult for families who can’t afford to have a financial advisor wade through the paperwork and complexity of 529 programs to enjoy these plans’ advantages.
Technology could also be a key to answering this challenge. On the individual level, it could democratize the 529 space.
For example, Backer is a platform that allows you to create a 529 college savings plan, and then provide a link to family and friends where they can contribute easily. They aim to make the process more collaborative. Companies like this simplify the process of opening a 529 plan and even help you get set up to contribute seamlessly.
Another savings program, Gradvisor, is the brainchild of the Savingforcollege.com team. (Full disclosure: Gradvisor is an EvoShare partner.) Their digital platform provides companies a way to offer college savings benefits to employees.
And holders of 529 accounts are not the only ones who could benefit from better technology. A more conducive atmosphere from the states administering these programs would also let innovations flow from the private sector.
While Innovation Is Helping, Starting Early Is Critical
There’s a lot to consider when looking at saving for your children’s future college needs. But help is at hand as technology makes saving for college simpler and more powerful for families. Whatever path you choose, it’s crucial to get your kids’ college savings going early and contribute regularly. It’s the choice I made, knowing I can figure out the details when the accounts have built up some real money.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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