Having a child brings not only new emotions and social status, but also additional expenses in the family budget. We have to think about how to financially prepare for our baby’s future.

Education fees might create a significant burden on the family budget and leave your child with significant debt. While I prefer to live debt-free and I don’t ever use credit cards (unlike my husband, but we are working on it), I can never imagine that my child or I will owe such a huge amount of money! This is why Jim and I decided to start saving money for our baby’s college as early as possible.

How do we manage to save money even during the current crisis?

It’s tough times for everyone and we don’t know how long it’s going to last. We, just like many others, experience downtime at work, and our income decreased drastically which made us put some of the short-term goals on pause. 

As for the long-term goals – we still are and will keep saving as we believe it is extremely important to always look into the future. 

Yes, we put aside less money than we normally do, but baby steps are much better than doing nothing at all. We save what we would normally spend on going out for a normal night in the city, which we now can’t do due to the lockdown. Jim and I tried to restructure our expenses and while we earn less money right now, we also spend less on restaurants, transportation, traveling, visiting our families in other cities, etc. We literally wrote down all our expenses and saw that we still have every opportunity to keep investing something in our NY 529 Plan!

The crisis will pass and everything will go back to normal. I am sure it will feel much better even if you manage to put aside $100, $300, or as much as you can throughout the whole of this. Meanwhile, we feel really proud of ourselves for staying committed to our long-term goals and the small steps we take.

What is the NY’s 529 College Savings Program Direct Plan?

As you already know, studying at colleges and universities in the USA is crazy expensive, so we decided to start saving money for it immediately after the birth of our child. For that purpose, we have carefully looked into a College Savings Plan also called the NY 529 Direct Plan. This is a special account that helps invest money for educational purposes for your children, grandchildren, relatives, and even yourself (well, I’m definitely not going back to school).

This account is made specifically for education after high school and options are not limited: vocational and trade schools, community colleges, graduate schools, and universities. So, it can be any eligible higher-education institution! Moreover, if our child wants to study abroad (and with our passion for traveling this might happen as well), we can just choose from eligible foreign universities. The account can be used in obtaining a bachelor’s, master’s, or a PhD.  

Also, there are a number of 529 plan options and the incentives may vary from state to state.  

We believe all these factors give a lot of flexibility both for children and parents. Being based in New York City and having done some previous research, we decided to go with the NY 529 Direct Plan.  

 Benefits of 529 Plan

NY 529 Direct Plan and Taxes

1. The account comes with real tax advantages, and an additional incentive that motivated us to choose 529 is that any investment earnings are not subject to federal and state taxes if the money is used for the educational needs of the specified beneficiary – for example, tuition, books, and college accommodation.*

2. Another benefit of this account is that in most states the money you invest in 529 is tax-deductible. In some states, it works for absolutely any amount of money, while in a number of states this amount can be limited. Check in the state you live for their rules and be sure to check with a professional when in doubt.

We researched specifically for New York state and found out that since we are a married couple filing jointly, we qualify for up to $10,000 deductible annually from taxable income.*

The decision has been easy – Jim and I unanimously choose to invest this money in our kid’s future instead of paying taxes on this amount.

529 Savings Plan and financial aid

What is important is when universities and the state consider a child for financial assistance, the money that is saved in this account is not fully accounted for and has less impact. Depending on parents’ income, the 529 plan may have no impact on the child’s financial aid package at all.

We have discovered at studentaid.gov that the 529 plan account assets generally fall under the parents' assets, not the child's. Overall, only a maximum of 5.64% of parental assets is counted on the Free Application for Federal Student Aid (FAFSA). 

So even if our child is particularly good at sports or talented in science, he or she can still have a possibility to receive need-based financial aid – which I think every parent hopes for, don’t we?

Jim: Sharing a Perspective from a Father’s Eye

Expecting a baby is a great time to reevaluate your attitude to a lot of things, including money.

I have never been able to save money too well, but for the sake of our child, I will do my best. With Inna’s support, I am making some of the last payments for my credit card; I will live debt-free in the moment and with a thought about the future.

I recently figured that whether it is your firstborn or the third child – it does not matter. Your life will forever change with the birth of a baby, and they grow so fast! 

Therefore, I believe it is so important not to postpone major financial decisions until the child grows older. Inna and I have calculated the amount of money we are able to save monthly, even during the current crisis, and figured that we should start saving no later than when our child is 4 years old. 

Also, I believe that children don’t need as many things as shops are trying to sell us. We are not planning to buy designer outfits or the most expensive stroller, but we will invest in what really matters – our child’s future education.

* Contributions of up to $10,000 are deductible annually from New York State taxable income for married couples filing jointly; single taxpayers can deduct up to $5,000 annually. New York State tax deductions may be subject to recapture in certain circumstances such as rollovers to another state's 529 plan, federal nonqualified withdrawals, or withdrawals used to pay elementary or secondary school tuition, registered apprenticeship program expenses, or qualified education loan repayments as described in the Disclosure Booklet and Tuition Savings Agreement. State tax benefits for non-resident New York taxpayers may vary. Please consult your tax advisor about your particular situation.

* Earnings on federal nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes.  Tax and other benefits are contingent on meeting other requirements.  Please consult your tax advisor about your particular situation.

Investment returns are not guaranteed, and you could lose money by investing in the Direct Plan.

For more information about New York's 529 College Savings Program Direct Plan, download a Disclosure Booklet and Tuition Savings Agreement or request one by calling 877-NYSAVES (877-697-2837). This
document includes investment objectives, risks, charges, expenses, and other information. You should read and consider them carefully before investing.

Before you invest, consider whether your or the beneficiary's home state offers any state tax or other benefits that are only available for investments in that state's 529 plan. Other state benefits may include financial aid, scholarship funds, and protection from creditors.

The Comptroller of the State of New York and the New York State Higher Education Services Corporation are the Program Administrators and are responsible for implementing and administering the Direct Plan.

Ascensus Broker Dealer Services, LLC, serves as Program Manager and, in connection with its affiliates, provides recordkeeping and administrative support services and is responsible for day-to-day operations of the Direct Plan. The Vanguard Group, Inc., serves as the Investment Manager. Vanguard Marketing Corporation provides marketing and distribution services to the Direct Plan.

No guarantee: None of the State of New York, its agencies, the Federal Deposit Insurance Corporation (FDIC), The Vanguard Group, Inc., Ascensus Broker Dealer Services, LLC, nor any of their applicable affiliates insures accounts or guarantees the principal deposited therein or any investment returns on any account or investment portfolio.

New York's 529 College Savings Program currently includes two separate 529 plans. The Direct Plan is sold directly by the Program. You may also participate in the Advisor-Guided Plan, which is sold exclusively through financial advisors and has different investment options and higher fees and expenses as well as financial advisor compensation.

©2020 New York’s 529 College Savings Program