A reader wants to save now for their infant son's college, but her spouse has serious doubts.

Question: I just had a son five months ago, and now that I’m finally adjusting to parenthood, I’m thinking about saving for his college. My friends all got 529 plans for their young children, but my husband is totally against that.

He says if our son decides not to go to college, we lose all our money — and if he’s really smart and gets lots of scholarships, we also lose the money. I’ve tried searching online for answers, but it’s all so confusing and I don’t know who to trust. What do you think?

— Anna in Rhode Island

Howard Dvorkin CPA answers…

Your husband is partly wrong about everything — but he’s not completely wrong about one thing.

529 plan is a long-term investment with a very narrow focus: Your child’s eventual college expenses. The biggest perk is that your savings grow without being taxed. The sooner you start a 529, the more you’ll have later for tuition, books, dorms, and even meal plans.

Your husband is correct, however, that if your son doesn’t go to college, you lose money.

You won’t lose all of it, though. If you decide to cash in your 529, you pay both income taxes and a 10 percent penalty on all the earnings. That hurts, but it’s not a complete loss.

That said, you can also change the beneficiary on your 529 once a year. So if you have another child who decides to attend college, it’s easy to change the name from one child to another.

Finally, if your son does go to college and excels so much that he receives a full scholarship, the IRS waives the penalty for taking out the cash. You still pay income taxes on your earnings, but you would do the same with many other types of investments.

Last year, another young mother asked me about saving for college. Here’s what I told her.


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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for Debt.com. I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only Debt.com, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched Debt.com. I’m glad you’re here.

Published by Debt.com, LLC