4 ways to boost your 529 without going broke

http://www.savingforcollege.com/articles/20101112-4-ways-to-boost-your-529-without-going-broke

Most people are proud of themselves for saving anything for college, but have you thought about tucking away even more for your child's future college costs?

The annual State of College Savings survey by the College Savings Foundation in Washington, D.C., discovered that 14 percent of parents who responded are putting more money aside for educational expenses this year than last year.

Take a look at the increases:

• 24 percent say they are saving between 10 percent and 15 percent more than last year, up from 5 percent in 2009.
• 17 percent say they are saving between 15 percent and 20 percent more than last year, up from 11 percent in 2009.

"Families are saving more, particularly for college," says Peter Mazareas, chairman of the College Savings Foundation. The foundation's survey queried about 800 parents in different income brackets across the country. "Those who have a dedicated savings vehicle -- whether a 529 plan or some other -- save significantly more."

Alan Goldfarb, a Certified Financial Planner at Weaver Wealth Management in Dallas, says those outcomes are a bit surprising, considering the economic times.

"I guess they're finally paying attention to the fact that these costs are escalating," he says.

Families understand that they can't rely on scholarships or loans to completely cover their child's education, Mazareas says. Another factor may be a response to the recent loss of savings during the recession.

"In order to make up for the losses … they've had to put more away," Goldfarb says. "But it also is a balance between what they can do for their own retirement versus what they can afford to put away for their child's education."

Mazareas says retirement is the most essential bucket, when it comes to saving for the future. But the "next major investment decision should be saving for college if they have kids," he says.

If your financial picture has improved or if you've decided to cut back to put more into 529 plan, here are three ways you could boost your college savings contributions by 15 to 20 percent in a year.

Evaluate new potential saving each year

Most people are putting more money into their 529 accounts on a regular basis -- either once a month or once a quarter, and those increases are adding up. Say you've been contributing $50 a month, or $600 a year. If you add just $10 more a month to your 529 savings, that's $120 a year, and a 20 percent increase.

Every year, re-evaluate where you are with your savings, but at the same time, try to increase it through any new discretionary income. "Do it systematically as opposed to writing out a check once a year, which people somehow don't do," Mazareas says.

It depends on "how much water one wants to wring out of the sponge in their monthly budget," to save for education, says Larry Rosenthal, president of Financial Planning Services in McLean, Va. Ask yourself if what you're spending is a necessity or a lifestyle choice -- such as buying coffee every day on the way to work.

Invite others to invest

If you don't have the money available, grandparents, family members and close friends may be able to increase the value of your 529 plan by 15 to 20 percent, with small contributions. Older family members who are re-evaluating their dollars and priorities also might want to give a larger gift, which could boost your 529 account. Or, they could open their own.

"Every time there's a family function or affair, whether a birthday or anniversary or Christmas, instead of giving the usual electronic junk, how about putting something into a college fund? Have your relatives contribute as opposed to giving iPods and underwear," Goldfarb says.

Change the flow of money

If your company is no longer matching your 401(k), you could choose to move some of the money you would be putting into that account into a 529 plan or other college savings investment. Some people have reduced their contributions and directed that money to education, Goldfarb says.

"People didn't all of a sudden make more money. They just had to redirect the money," he says.

Increase your risk cautiously

You can try to maximize your returns with a higher risk investment option, but you run a higher risk that the investment may go south, says Joe Hurley, founder of Savingforcollege.com.

Most families do not want to take on a lot of risk with their 529 plan because if their college savings account does not perform, they're going to be short of money when it comes to paying for college, he says.

"College savings tends to be the more conservative part of the overall portfolio," Hurley says. "Really you should not be striving to get a 15 percent return unless you can really afford to take a loss, if that happens. Most families are not in that position."

Rosenthal says the closer you are to the college years, the more conservative your dollars need to be positioned.

Posted November 12, 2010