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Correction: A previous version of this story misstated the best time for a relative to make a disbursement from a 529 plan.
When researchers at Stanford University offered children a marshmallow but promised them two if they waited, many gobbled down the sweet treat on the spot.
The famous marshmallow experiment demonstrated the challenge of planning ahead. It also helps explain why some parents with kids in high school suddenly realize they haven’t saved enough (or anything) for college.
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“The light bulb goes off when the kids are 12 or 14 years old, and, ‘Oh, my gosh, we’ve got to do something,’ ” said James DiUlio, director of the Wisconsin 529 College Savings Program and chair of the College Savings Plans Network.
Nine out of 10 families decide that their children are college material as early as the day they sign up for preschool, a survey by the private student loan company Sallie Mae found, but fewer than four in 10 make a plan for how to cover the cost.
That further complicates an already bafflingly complex process. But there are strategies for staying ahead of the game, even when you start from behind.
“The first thing is, don’t panic,” said Kal Chany, founder and president of Campus Consultants and author of Paying for College Without Going Broke. “There are still some things that you can do.”
1. Start saving
If you haven't begun putting money aside, start now — even if you have only a few years (or less) before you drop your child off at the dorm. Every dollar saved now is a dollar that doesn’t have to be borrowed later — and might cost $2 to repay. Plus, deposits to a 529 college savings account offer a tax benefit in 34 states and the District of Columbia, and earnings are federally tax free. In all but four of those states, you can put money into a 529 plan, withdraw it as soon as the next day and still get the tax credit or deduction. That’s like getting a discount on tuition.
“You’re going to spend the money anyway, so rather than have it sitting in your checkbook, put it in a 529,” DiUlio said.