Late start in saving for college

I manage our family’s finances and have done a lot of reading. A 529 has benefits no matter when you start it. The growth is tax-free over those 10 years, whereas regular savings or brokerage accounts are not. There is also favorable treatment of 529 plans for financial aid purposes (https://www.savingforcollege.com/intro-to-529s/does-a-529-plan-affect-f…). Even if you are relatively high income, it could be relevant if one of your kids is looking at private colleges that meet all financial need- your family may still have need in that case given the high tuition. Other benefits: They could hold onto the money for grad school if by some magic it’s not needed for undergrad. The plans also will provide forms or links that make it easy for other people like extended family to make gifts to the plan if you think that’s relevant (or might be for milestones like a bat/bar mitzvah, middle school graduation, sweet 16, etc). Remember it will actually be 5-6 years before the end of college even from age 16. 

As a side note, there are no state income tax benefits in California but that means you can choose any state’s plan. We ended up in the CA plan because it offers a socially conscious stock fund (but not part of a target date fund unfortunately). If you have accounts already at Vanguard or Fidelity, you might choose a plan hosted there for simplicity, and a target date fund is the easiest option because it will gradually make your investments less stock heavy as each kid approaches college. Happy saving! It’s a great feeling to be financially able to do it and I know you’ll figure out the details!

I started a 529 for my son when he was around 8. On the advice of a friend-of-a-friend financial planner, I started putting $500/month in it. When freshman year rolled around, there was enough in there for 4 years at a cal state, or 3 at a UC, or 2 at an out of state school/private school with aid. That worked out great for my family because it was a “contribute and forget it” situation. I learned a couple of things: 1 CA does not offer a tax benefit on a 529 other than tax free growth. 2. It is absolutely essential to have your child apply to a “financial safety school”. Other people will know more, so I hope you get lots of responses. 

It’s never too late to open a 529 account, which I would highly recommend. You don’t need to pay a financial advisor to tell you this. Go to the Vanguard website, which offers lots of information about 529s, and you can open the account online. This is a much better option than a regular savings account because you won’t pay taxes on any of the gains as long as you use the money for education expenses. Set up an account for each child. Even if you don’t have all the money you will need for college, it’s nice to have something saved up in advance to lighten the future cost of college. 

Its never too late to start and saving anything is better than nothing! We do a 529 and like the ease of it, its also really easy to give a donate code to friends and families for birthdays. Unfortunately CA does not offer any incentive or benefits for having a 529 so you don't have to get the CA one. We actually use the NY 529 plan because they had the best rates at the time. My advice is to hunt around for the lowest rate 529 you can find. Otherwise, if you have a large amount to deposit up front you can consider a high yield savings account, but usually those require an initial deposit that is high. 

You should open a 529. The major benefit is that the earnings are tax free and withdrawals can be taken tax free if used for educational expenses. That won’t be true for savings in a regular account - any earnings will be taxed. Within the 529 account you can choose the type of investment you want to make, ie more aggressive and volatile (mostly stocks) or more moderate and stable. You should take into account your level of risk tolerance in making that decision and you may want to talk to a fee-only financial advisor (not commission based) about that. You may think you’re getting a late start but you still have time to save a good amount. Good luck!

There aren't any quick-fix ways to catch up on the years of investing that you've missed. Here are the options you have-

• High-yield savings bank account: ~2.5% annual percent yield as of today, rates change. Interest you earn is taxed. Parent-owned high-yield savings accounts have a relatively minimal impact on a student’s financial aid eligibility. But, high-yield savings accounts owned by a student can reduce the student’s financial aid eligibility by 20% of the account value.
• Regular/money market savings bank account: <0.5% APY. Taxed.
• 529 plan: variable, depends on the stock market and how aggressive (risk-taking) you want to be. Interest you earn is NOT taxed. It functions a lot like a Roth IRA. In California, contributions, unfortunately, do not qualify for a state income tax deduction.
• Private college 529 plan: similar to above but it locks in the tuition at select colleges at today's rate.
• Regular stock brokerage account: similar to 529 but interest you earn is taxed. Money can be used for anything in the future, not just education.

I was in a similar position to you ~10 years ago. My older child has delayed college and may never go. My younger child is a sophomore in college.

The answer to your question is basically a math problem based on projections and assumptions. If you use a tax preparer or financial advisor, I suggest you start with a conversation with them. The 529 Plan has a limited number of funds to invest in. When my spouse and I looked at the available funds versus what we would choose on the open market, we found that the tax benefit did not outweigh the estimated return on investment. The market is quite different now. You'll need to assess based on your tax rate and current market conditions.

If you choose to forego a 529 Plan, I highly recommend you establish an earmarked account with automatic deposits for each child. If you are not working with a tax preparer or financial advisor who can help with this question (and others!), I suggest you begin a relationship with someone you feel you can trust.