529 Plan and College Savings

Question: College Savings Plan OR Additional Mortgage Payments?

OK, I have a 6-month old daughter and I am trying to decide whether to put extra money into a 529 account or if I should use that money to pay down and eventually pay off my mortgage (thus freeing up more money for college). Here are my stats followed by my comments on the options I have:
Age: 27
Marital Status: Married
Income: $100k/yr
Retirement: $46k
Savings (incl. Emer.): $35k
Primary Residence: $150k (Left on Mortgage: $100k [15yr [email protected]%])
Rental Property: $112 (Left on Mortgage: $60k [15yr [email protected]%])

I have health insurance for all my family and life insurance for both my wife and myself.

From what I have seen, the tax savings on 529 plans are really not that great. On the other hand, the tax benefits of my mortgage are minimal because I will probably be taking standard deduction in the coming years.

Please include reasons for your choice. Thank you for you answers.

Answer: It’s really great to read a question from someone who is trying to decide between two GOOD options! It’s refreshing to see someone who has enough extra cash to pay down debt and SAVE some money (rather than maxing out every dime they earn toward a house they can’t afford or a fancy car).

The interest rate on your mortgage is a good one. Additionally, your loan is being amortized over 15 years so you’re putting money toward the principal balance more aggressively.

On the other hand, the cost of a college education is much more volatile. If you put money aside now, then it’s more likely to have a greater payoff in the future (in terms of reducing the hugely inflated cost of a college education). I think the 529 and other College Savings Plans “lock in” the tuition rate, so you’re hedging a volatile risk.

The VALUE of an overly inflated college education is something I question, but that’s another question altogether.

I suggest putting extra cash toward the 529 Plan. Your mortgages will be paid off relatively soon anyway. If you begin earning more money over the next few years, then you can put the extra toward retiring your mortgage debt (the higher interest rate mortgage first). Again, you can’t really go wrong either way.

Congratulations for being such a wise steward of your finances!

Top 5 Roth IRA Benefits – Skloff Financial Group

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