Should you start saving for college even before your child is born?

WASHINGTON >> Next to buying a home, paying for college has become the largest investment for many families.

One of the best ways to save for college is in a 529 savings plan, which allows your money to grow tax-free. And if the funds are used for qualified educational expenses, earnings are not taxed at the federal and, in most cases, state level.

Recently I invited an expert on 529s to address reader questions during my weekly online discussion. Mark Kantrowitz, the publisher and vice president of research for savingforcollege.com, had this to say to those trying to save for their children’s future.

Q: My spouse and I are planning to have our first child soon and are also looking for ways to reduce our tax liability this year. Would starting a 529 now in one of our names be a good option for us?

Kantrowitz: I started saving for my children’s college education before my children were born. If you start saving for college before the child is born, it will give you more time for interest to compound and the savings to grow. Starting to save for college before the baby is born gives you the opportunity to solicit contributions to the baby’s college savings plan during a baby shower.

Assuming a 5 percent average annual return on investment and $250 monthly contributions, the family will accumulate $80,465 (36.6 percent from earnings) over 17 years, $87,664 (38.4 percent from earnings) over 18 years, $95,232 (40.1 percent from earnings) over 19 years and $103,187 (41.9 percent from earnings) over 20 years.

You can start saving for a child’s college education before the child is born by listing yourself as the beneficiary of the 529 plan. After the child is born and has a Social Security number, you can change the beneficiary to the child.

Q: I have two boys — a 7-yearold and a 2-year-old. Saving for college hasn’t been a priority because we’ve been pouring all our extra money into daycare expenses. We intend to save aggressively once daycare ends. Would you save the same amount for both kids, or would you front-load the older boy’s account?

Kantrowitz: It is best to start saving for college, even if just a little, as soon as possible, and to set up an automatic investment program that transfers the

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