Generally speaking, I consider myself “Stock Market Positive”. I believe investing in companies on the stock exchange is generally a good concept. But I am refusing to get the recommended 529 Educational Savings Plan for my son.
I have made more money through various stock market/real estate investments (passively), than my 15 years in the work-force. My ”Mama Capitalist” page details the whole story.
If we have the same type of passive income economy where investing in things can make a person more money than a working, it would be better to keep funds available for investing in things rather than education. Right? The 529 Plan signals we are headed in this same direction. It means that it does not make sense to tie up sums of money exclusively for education, regardless of tax incentives.
The math does not look right.
What is worth more in the photo? The person or the money? Photo courtesy of Truthout.org
Today, the average working American does not have disposable income to invest in the stock market. Or purchase goods (without using a credit card) that are sold by companies on the stock exchange. As a result, I am not as confident in the stock market scheme as I used to be. I know too much about it now.
My specific grievance with the 529 Plan is much more complicated though. What does it say about our system when the ideal way to save enough money for a child’s education is to siphon it away to Wall Street?
It says to me that American workers are not likely to see income raises competitive to stock market annual returns — for another 20-30 years. Have we not yet learned from the last 30 years of the draw-backs of such a situation?
It also means that the cost of education will continue to reach new heights, becoming increasingly inaccessible to those without stock portfolios or a willingness to take on the weight of debt.
The 529 Plan is reflecting back to us America’s the effects of our society’s twisted and singular monetary arrangement. Do we want to teach our children that American’s earn more when we work hard? Or that the best way to make money is the easy way – on Wall Street?
Here is my strategy for paying my son’s education.
Currently, I have a utility (AEP) dividend reinvestment plan. I plan to let it continue to grow as my son grows. I will “gift” him money “tax free” (today’s rules) during his first two years in college into a safe account. Because what if he does not go? The 529 funds would still be taxable.
If he gets a good job and opts out of school, I would still consider gifting money for him to have a down payment on a house. This situation gives him various financial options, unlike the 529 Plan.
But there is a caveat, I will gift him only the value of one half annual salary of his chosen profession. Say he wants to go to school to be an engineer and could expect to earn 70K after the first 3 years. I’ll will come up with $35K payable only during the LAST two years of school (after two years of transferring the funds “mostly” tax free). For the first two it’s his responsibility — via loans and scholarships. Too many kids take school for granted because they are not responsible for it financially. I don’t want my son to think there is unlimited loot somewhere. He needs to show me he is serious about school before I fork it over. I want to show him that a work ethic provides nice returns – not just a dividend reinvestment plan!
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Birumon
/ August 8, 2012Really amazing your site has now said to me that i have to read more and more and i like your logo of the site
Freedombytheway
/ November 23, 2011Your “freedom bloggy friend”
is impressed with your viewpoint. I am a victim of a 529 (yes, signed up years ag) and I never considered what you just wrote–it’s another way for the government to see how much we’ve saved–how much we are willing to spend on a college education. YIKES! I only have one child and one college tuition to pay so there are no do overs for me.
Heather
/ November 25, 2011haha…Well, chances are you will find a good use for the funds. You and Rio are giving me ideas
Marm
/ November 19, 2011Though work in the financial industry, I’m not a fan of 529s either. Mostly because I see that parents typically start with 5K or less and then never add to it over time – assuming they are financially able to do so. These plans are generally put into very safe investments and are expected to grow over a long period of time and at low, but steady pace. And, of course, that’s the idea along with the tax advantages IF the child actually goes to college.
Gifting is a great idea. By the time your son grows up, who knows what the gifting limit will be.
It will be interesting to see if your plan works!
Heather
/ November 19, 2011I love hearing from people close to this business. Thanks for sharing your experience with the plan and the gifting option.
Stay with the blog for the next 20 years or so and I’ll let you know what happens
Rio Guzman
/ November 18, 2011Good post Heather! I would like to see a post on: “Moms pondering what would happen to their children if the entity that controls our government now stays in power.” What do you think? Just an idea! You can do research here: http://AE911TRUTH.ORG/
Heather
/ November 19, 2011HI Rio
Lately I have been thinking about that very thing. It does seem like there is a separation of parent/child influence. I see it largely in the business/marketing arenas but given the cozy relationship business has with our government, your statement is worth considering. I’ll will put something together on my observations. The good news is that in spite of a lot of the rhetoric saying people want “social systems”, I see a trend of family/community unity and reliance arising.
Great to see you!
Gerrard
/ November 18, 2011I think the idea of a saving for a child’s college education with a 529 Plan is to generate more returns than your bank could in a similar amount of time. Plus, you’re more likely to dip into a savings account than a 529 Plan.
But now I’m curious. What are your plans, if you’re not going to go with a 529 Plan?
Heather
/ November 18, 2011It know it is about the compounding returns. I just think that limiting funds for educational purposes only seems laughable when you look closely at how the system works.
I added my plan. Thanks for bringing it up!
The cynical side of me thinks that the 529 Plan is away for the greedy people running things to “monitor” how much they can raise the cost of education and still have people willing to pay. My Freedom bloggy-friend might be proud of me for coming up with that theory.
You always get me thinking, Gerard.