My favorite was Oreo.  In her last year, she would curl up in the bend of my elbow and lean her soft, warm, little body against my rib cage, and I would stroke her back and her head for sometimes up to an hour.  Sounds kinda sweet, doesn’t it?

The 529 Is Not the Perfect Pet

Like pet rats, the 529 plan is billed as a perfect investment.  Put in after-tax money, let it grow tax-deferred, and if you pull money out under prescribed rules, the withdrawals are tax-free.  You probably know someone who had a great experience with one.  What’s not to like?

Problem is, you don’t know until you’re knee-deep into the commitment.

Here’s what’s not great about pet rats:  The cage will take up more space that than you care to relinquish, their urine and feces still smells, cleaning the cage takes up a lot of time, the kids likely won’t help like they promised, and vet visits are pricey if you can even find a vet who can treat a sick rat.

Here’s what’s not great about 529 plans:  Just because you funded one doesn’t mean your kid goes to college, you can typically only change investment options once a year, it will likely not cover all of the college costs, and spending the money on the “wrong” things costs you penalties and possibly higher taxes.

For you, the 529 cage might be the wrong size, smelly, and your kids may be no help at all.

Alternatives to the 529

I think what people like about the 529 plan is that it is money specifically set-aside for college.  There’s something mentally appealing about the segregation, and it’s harder to raid the funds in a weak moment when it has little Lizzie’s name on it.

But there are lots of other ways to accumulate assets that can be psychologically earmarked as a college fund:

• A stock/bonds account that can be later transferred to a child to pay for college or pay off student loans.
• Real estate is hugely popular, especially if purchased before a child is born or is very young. Use the rental income or sale proceeds to pay for college.
• Being self-employed and employing your child during the summer has wonderful tax benefits for college funding.
• Some retirement plans allow for withdrawals for college expenses without penalty. You can fund these for your kid if they work while in K-12 and have earned income.

This list goes on.

The 529 is not the be-all-end-all of funding a college education.  If you are going to use one, be judicious about how much you put into it.  While the rules around 529 money have changed over the years (you can even fund a Roth with them now under the right circumstances), the last thing you want is money earmarked for college that will never be used for such.

Focus on the Outcome You Really Want:  A Happy Kid

We loved our rats, but in truth, what we all really wanted was a dog.  At the time, I was unwilling to take on the responsibility or the commitment.

What you probably really want is for your kid to grow up to be successful, confident, resilient, financially self-sufficient, and happy.  College may or may not be part of that path.

I suspect that what you really want for yourself is to grow up to be funded for retirement, confident, financially self-sufficient, and happy.  Flexibility and options are key, and the 529 doesn’t have much flexibility or options.  Choose it wisely.

If you want to talk more about college funding, please reach out.

Lanning Financial Inc. is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

Getting ahead of falling behind

This time of year I spend on business planning.  What worked this year and what didn’t?  What was missing?  Where will I spend my time next year?  Where will I make my money?  What projects do I want to take on?  What excites me about 2011?

This starts with sitting on the floor and taking out every file in my file cabinet and cleaning it out.  If I haven’t looked at it and don’t need it, it gets tossed.  If should be scanned and filed, it is.  The most useful items are put at my fingertips.  I go through my electronic files and make a file that says “2010” and I will put all 2010 documents there.  That folder will live in a folder called “Historical”.  If I really need it, I can find it.  (I rarely need it.  It’s just too easy to save electronic stuff.)  I put on music, sing, and purge.  I love making room for the new.

I’m often asked how I manage to do so much with so much clarity, confidence and focus.  Where do I get the time?  How do I remember it all?   This annual ritual of coming casual to the office, sitting on the floor, and sitting quietly through my thoughts is what makes that happen.  I know where I’m going to spend my time, I know what has priority for me, I know where my information lives.  When a request or a question comes across my desk, I know how to think about it, I know whether to say yes or no, I know where to go to get the answer.  It’s not so much about orderliness as it is about efficiencies.  I want room in my life to do what I want.  (Searching for things isn’t one of them.  However it is snowing, and I’m ready to ski.)

If you’re lucky enough to be in a business that’s quiet during the holidays, take the quiet time to clean out the old and make room for the new.  I wish you great productivity, insight, creativity, and excitement for a new year coming.

Discovering what’s missing and out-of-date

I spent the weekend before my summer vacation fast and furiously finishing all those projects I’ve procrastinated on for the last eight months.  I don’t know what it is about vacation that makes me do this, but there’s nothing like a deadline to get things done, so I did.  They included:

1. Updating my earthquake kit.  Important, right?  The food, water, and medicines had expired.  The batteries needed replacing.  One of the crank flashlights no longer worked.  The light sticks were outdated (do they expire?).  Not good.  All fixed now.
    
2. Reviewing my “master binder” of financial, health, and personal documents.  This is a binder with copies of all my important documents in one place.  I agree that the medium is a bit outdated, but so are my husband’s technological skills.  This is the go-to binder for my sister and best friend when they fly in from the East Coast after my death to my distraught family to “take care of my affairs.”  Important, right?  I discovered that two of my life insurance policies had been sold to other companies, so I updated that information with the new companies.  The kids’ information was outdated and their passports expired.  We don’t have an original birth certificate at home just in case.  Not good.  All fixed now.
    
3. Visiting my safe deposit box.  Now where did I put that key again?  I went to visit, cleaned out old documents, put in new ones, revised my list of contents and updated that for my master binder.  I’m reminded that I need to do a better job protecting my originals from fire and theft.  Not good.  All fixed now.

These things are a pain.  But it feels so good to get them done, whether you are the “financial master” of the household or the one who would need the most hand-holding in case of death or disability of one’s spouse.  The kids got a kick out of tearing open the water packets from the earthquake kit and watering the plants, tasting the outdated “food” (it wasn’t that old, and I’m not sure it’s food), and talking about being prepared in an emergency.  Oh yeah, I guess we should review those fire and earthquake drills, too.