Follow this guide to evaluate the benefits of a 529 college savings plan, and if it's right for your family

When to Consider a 529 College Savings Plan?

If you're like many of parents, college feels like it's a million years away for your child. Especially if you are a new parent, or just newly pregnant and trying to update your financial plan.

But, like it or not, that tens-of-thousands-of-dollars expense is looming in the future. We can help you tackle that big savings goal. And, even more, we can help you determine how to use these funds. (Psst, some states allow you to use college savings funds for primary or secondary school, not only college! And, did you know you can use these funds for multiple children?! Keep reading to learn more!)

First thing's first. What the heck is a 529 plan, or otherwise known as a college savings plan, and technically called a "qualified tuition program"?

These college savings plans were created decades ago, in an effort to encourage people to save money for their children's college tuition. The plan was for college students to rely on less federal loans and sign up for less debt. The colloquial name, 529, gets its name from the tax code it is filed under.

What's the big deal with 529 college savings plans? Earnings on these investment plans are not taxed when they are used for qualified college expenses, and many states allow a tax deduction when contributing into the plans.

What are the benefits of a 529 college savings plan?

Saving for college early—sounds pretty smart, right? (We think so!) The benefits of college savings plans are twofold.

, usually up to a certain amount (see below).

Second, the earnings and growth of college savings funds are 

Third, unused 529 funds up to a certain limit can be 

Can you use 529 college savings funds for other schools?

Do you have elementary or secondary aged children enrolled in private school? You may be wondering if you should route tuition payments through your child's 529 plan or use existing 529 funds.

The 2017 Tax Cuts and Jobs Act further increased flexibility behind college 529 savings plans. The 2017 law allows for distributions from 529 plans to include tuition for primary or secondary education up to $10,000 per year, per family.

A word of caution, though: don't jump into distributions so fast. It's complicated.

As we previously mentioned, the earnings and growth of college savings funds are federal tax free, when used for qualified expenses. This means that, even if your state allows for 529 funds for elementary or secondary tuition, if the funds do not have significant time to grow in the 529, you lose that appreciation tax benefit. This happens because the tax-free growth is so valuable.

Does your state allow use of 529 funds for primary or secondary education?

Before moving forward using your 529 college savings fund for your child or children's primary or secondary school tuition, ensure your state has formally approved the 2017 Tax Cuts and Jobs Act.

Although the federal government created 529s, they are administered by the individual state—not necessarily your state of residence, but rather, the state that manages your particular 529. Many states have formally agreed that they will allow distributions to cover elementary and secondary tuition, but many states have not.

Last to consider, if the 529 balance exceeds the expected college cost, a distribution for elementary or secondary education 

 be a beneficial route, but there are still other options. (

, did you know you can use your college savings funds on more than one child? Or, even your children's children?! Keep reading!)

Follow this check-list to determine how to use your 529 college savings funds

As you now know, 529 college savings plans are incredibly beneficial. They help you tackle saving for this massive expense slowly, and can have tax benefits. That's what we call a win-win-win situation—everyone wins!

Review the below checklist to determine if using your 529 college savings funds for your elementary or primary school is possible and advisable.

Has that state declared if they will allow 529 distributions for elementary and secondary tuition?

 This ruling will determine whether or not you can use these funds for anything but college.

Do you have more money in your 529s savings account than what your child will need for college? 

If you do, you can consider pulling funds out to support elementary or secondary tuition. Or, another option to keep in mind is to allow these funds to continue to grow further for 

 children or siblings. Remember that your college savings funds can be for more than one child.

Are considering routing tuition through a 529?

 If so, which state tax deduction are you eligible for? Remember you receive the potential state tax deduction when you are investing in your home state's 529, which may not always be the right fit.

 If you're already contributing to your children's 529, you may already be receiving the max state benefit for contributions.

College savings plans are great tools to help yourself save for the future. One word, or phrase, of caution, though: just like they say to protect yourself before others on airplanes, we suggest you consider getting your own savings in order before funding a college savings plan. Make sure you've paid down big debt and are already saving for retirement before you start pouring your money into a 529 college savings plan.

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Follow this 5-step plan to get your college savings fund in order

What's the Right College Savings Plan for My Child?

 resting at $1.71 trillion*—and rising—saving for college is a big deal. And, while most of us don't have $40K to front all at once come college, saving over time can be incredibly helpful for you and your child. In fact, a college savings plan can help your child from having to take federal loans, and be saddled with debt for five, ten, even 30 years.

You might have a newborn baby or are recently pregnant. This still applies to you! Setting up your college savings plan is an important part of your new baby financial plan updates. Or, you may be in the middle of determining if you should get your child a 

Stick around, and we'll help you cover the main questions about college savings plans:

What are the college savings plan options?

What type of college savings plan is right for me and my child?

How do we invest in a college savings plan?

How much should we invest in a college savings plan?

When saving for your child's college tuition, you have several options to consider. Just like we recommend you do for all financial decisions, both big and small, weigh the benefits before you make your selection. And, if you have a partner or spouse who is contributing, we recommend getting them on board, too.

State 529 college savings plans—direct-sold 

can be lower-cost and DIY options that you can open online.

State 529 college savings plans—broker-sold 

are accounts that you can open through your licensed financial advisor. A 2018 Fidelity report** found that 67 percent of people who worked with a financial advisor felt they had a good understanding of how to save for college, as compared to 40 percent of those who did not work with a financial advisor.

 are tax-advantaged college savings programs, where you purchase tuition at current rates. Similar to a rent control apartment, these plans allow you to purchase tuition credits for the current cost, versus the likely inflated cost when your child is of college age.

are savings plans that help you to save and pay for education expenses from kindergarten through college. Account earnings can grow tax-deferred and withdrawals are tax-free, when used for eligible expenses.

 are savings accounts with financial institutions that an adult controls for a minor. These accounts don't have withdrawal penalties or require distributions but, unlike 529 college savings plans and educational savings accounts, custodial accounts are 

are generally thought of us loans to the federal government. That's right; you lend money to the federal government for a certain period of time and, when that time is up, the government pays you back in full—with interest.

How to choose between college savings plan options

Lately, it seems that the state sponsored 529 college savings plans are highly popular. Many financial professionals prefer these as they can have the greatest flexibility.

The main benefits of 529 college savings plans are:

You can sock away the most amount of money each year

You may be eligible for a state tax deduction

If you elect the proper plan and investment option, these plans are relatively "self-managing"—you can set it and 

 because we're big fans of keeping an eye on your investments)

Most states offer at least one 529 plan option, so how do you know which is the right plan? You shouldn't necessarily elect the 529 plan of your state of residence. It may sound strange or counterintuitive, but some state's plans are better than others from a performance, management and fee standpoint. Not to mention, the sole benefit of using your own state's plan is typically to take advantage of the tax benefit. But, that benefit may or may not be major (or even relevant) in your state, if your state has a no state income rate or doesn't offer a tax deduction for 529 plans.

Follow the below checklist and evaluate the following items to determine which college savings plan is right for you and your family:

As previously mentioned, there are broker-sold plans, which pay a commission back to the broker who sells it to you. These plans tend to be more active than passive—meaning your broker is constantly working on getting you the best savings and, therefore, justify their broker fees.

As opposed to the broker route, where you purchase a 529 college savings plan from a broker, going to direct route means you log on the state 529 website and fill out the forms yourself. This method is passive, as you set the account and almost forget it. If you elect the right one, you will not need to pay a broker fee.

Does your state offer a tax deduction for your contributions to 529s?

 Some plans are better than others. We trust Morningstar and the annual rankings they do of state 529 plans.

There you have it! Finding the right college savings plan for you and your family can be as simple as evaluating five short steps! Before you start diving into your college savings plan, make sure you've paid down big debt and are already saving for retirement. After all, it's important to make sure you're financially stable before investing in your child's college savings plan.

**Fidelity, "College is No Free Ride: One-in-Three Families Expect Kids to Save Over $10K for College Costs by High School Graduation (But Haven't Told Them Yet)", 2018

Did you know how you’re raised to approach money has a lasting impact on your lifelong financial habits?

How Childhood Affects Financial Habits

Ever wonder why you're a savvy saver while your bestie's a shopaholic? Or why you break into a cold sweat at the mere thought of investing? Spoiler alert: It might have something to do with your childhood!

Let's hop into our financial DeLorean and travel back to your younger years. Those early experiences with money? They're like the secret ingredients in your financial recipe today.

Did your parents budget meticulously or live paycheck to paycheck?

Was saving for the future a priority, or was instant gratification the norm?

These patterns likely left an impression on you. If your parents were 

, you might find yourself naturally inclined to track expenses. On the flip side, if spending was more spontaneous in your household, you might struggle with impulse purchases.

But how do I put this into practice? First, take that DeLorean for a spin around your block and reflect on your family's financial habits. Then, identify which ones you've adopted and which you'd like to change by letting them ride shotgun on your financial journey into the future.

Was money a taboo topic at the dinner table, or did your family discuss finances openly?

This openness (or silence) can shape your comfort level with financial conversations as an adult. If money was rarely discussed, you might find it challenging to talk about finances with your partner or seek professional advice.

We start to rewrite and reshape our comfortability by addressing the big, green elephant in the room. Start normalizing money conversations in your own life. Set up regular "money dates" with yourself or your partner to discuss financial goals and progress.

Your childhood allowance wasn't just about scoring that new toy. It was your first taste of financial independence!

Were you encouraged to save part of your allowance or gift money?

Did your parents help you open a savings account?

If saving was emphasized, you might have developed a knack for delayed gratification. This skill is crucial for long-term financial success, from building an emergency fund to saving for retirement.

Not everyone is an expert right off the bat, especially when it comes to finances. So, if saving doesn't come naturally, start small. Try the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings and 

 can do wonders for figuring out how to bucket out each of those.

Did you learn to associate money with immediate pleasure?

If spending was the norm, you might find yourself more inclined to splurge than save. This can lead to challenges in building long-term wealth and financial security.

One super easy but effective way to keep yourself in check is to implement the 24-hour rule. Before making a purchase, give yourself a buffer period of at least 24 hours for all non-essential items. This pause can help break impulsive spending habits and give you time to reflect on whether that next dollar could be better used elsewhere.

Feeling like your childhood money memories are holding you back? Don't worry, you're not stuck in a financial time loop!

Recognize how your upbringing influences your money habits

Identify patterns that might be hindering your financial growth

Understanding these influences is the first step to financial growth. Maybe you avoid investing because your parents lost money in the stock market, or perhaps you overspend to compensate for childhood scarcity.

A great place to start is to keep a money journal for a week. Note your spending decisions and the emotions behind them. Look for patterns linked to your childhood experiences. When you can identify patterns that you want to change, it becomes a lot easier to recognize when and where to break those patterns.

Develop healthy financial habits, regardless of your upbringing

Educate yourself on personal finance topics

It's never too late to develop healthy financial habits. Start small, be consistent, and watch your money mindset evolve.

Choose one financial skill to master this month, whether it's creating/tightening a budget, understanding your credit score and how to build better credit, or learning about alternative investing options.

Remember, your childhood experiences may have set the stage, but you're the director of your financial future. Here's how to take control:

Assess Your Current Financial Situation: Take stock of your income, expenses, debts, and savings. Knowledge is power!

Set Clear Financial Goals: Whether it's building an emergency fund, paying off debt, or saving for a down payment, define what financial success looks like for you.

Create a Budget That Works for You: Find a budgeting method that fits your lifestyle, whether it's the envelope system, zero-based budgeting, or a simple 50/30/20 split.

Automate Your Finances: Set up automatic transfers to your savings and investment accounts to make good financial habits effortless.

Continuously Educate Yourself: The financial world is always evolving. Stay informed through reputable financial websites, books, and podcasts.

Whether you're aiming to be a savvy saver, a confident investor, or just want to feel more in control of your finances, CFCU is here to help you write your own money story. Our app provides personalized financial guidance, helping you break free from limiting money beliefs and build a secure financial future.

Disclaimer: It is important to understand that nothing in this content should be considered personalized investment, financial, tax, or legal advice.

Read about how CFCU and the Relentless Care Foundation are supporting youth workforce development, culinary arts and food entrepreneurship in Detroit and beyond.

Cooking Up Recipes for Success at Detroit Food Academy

The Relentless Care Foundation's grant will support offerings like the Afterschool Leadership Program, which provides weekly cooking classes to youth at schools and community centers, and the Advanced Afterschool Leadership Program, where 20-25 students who have excelled in the culinary arts gain practical career skills, financial literacy and food industry entrepreneurship training at the Academy's Small Batch kitchen.

"We have a lot of amazing partnerships we've developed throughout the years with local food businesses," said Kiki Louya, Executive Director of Detroit Food Academy, "and thanks to the Relentless Care Foundation, we can magnify those partnerships and improve upon our workforce development pipeline."

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The Relentless Care Foundation awarded a $20,000 grant to the Community Economy Development Association of Michigan, CEDAM, a nonprofit association that works to build vibrant communities across Michigan, supporting them in their efforts to expand access to affordable housing, drive greater economic growth, and increase household wealth.

Advancing Affordable Housing Development with CEDAM

One of CEDAM's core priorities is to build robust, equitable affordable housing development in Michigan through the Real Estate Development Bootcamp Program, which supports emerging real estate developers as they work to construct new affordable housing developments across the state.

"With support from the Relentless Care Foundation, we’re going to be able to track our outcomes better," said Emily Reyst, Director of Communications and Training at CEDAM.

"We'll have a better understanding of how our participants in the Real Estate Bootcamp Program are doing and how they’ll shape the field for years to come."

CEDAM

Learn how CFCU and the Relentless Care Foundation are partnering with local organizations like Habitat for Humanity of Northeast Michigan to build affordable housing in the communities we serve.

Working Together to Build Affordable Housing in Northeast Michigan

"Without the help of the Relentless Care Foundation, nothing could get done to address the need for affordable housing in our service area," said Ted Fines, Executive Director of Habitat for Humanity of Northeast Michigan.

Over the next year, the non-profit organization plans to build another four houses, with more planned to be built over the next three to seven years on 19.5 acres of land.

Habitat for Humanity of Northeast Michigan

See how the Relentless Care Foundation and Crossroads Industries are working together to help adults with disabilities become active participants in community life while gaining and retaining their independence in group-supported settings.

Fostering Independent Living with Crossroads Industries

"We are so grateful for the Relentless Care Foundation’s partnership and support to help us fulfil our mission," said Fran Damoth Bigelow, co-director of Crossroads Industries.

Crossroads Industries

Learn about how the Relentless Care Foundation is supporting career readiness and professional programming with an $8,000 grant to the Plymouth District Library.

Teaching the ABCs of Career Readiness with the Plymouth District Library

"We are so thankful for the support from the Relentless Care Foundation," said Shauna Anderson, Director of the Plymouth District Library. "As a public library we’re all about about celebrating a culture of reading and supporting literacy, [but] we’ve extended beyond books in many of our services."

"We’re providing learning programs, and the support we’ve received allows us to expand on that."

Experts in real estate investing, automotive engineering, watercolor painting, and much more will teach library patrons the ins and outs of their professions, whether that's demystifying the homebuying process, learning how to give a great speech, or figuring out how to navigate the digital world and enhance career prospects.

Plymouth Library

Tapping into Local Expertise at the Plymouth District Library

Learn how CFCU and the Relentless Care Foundation are partnering with MiWealth to promote and preserve homeownership, advance financial literacy, develop a career-ready workforce through vocational skills training, and invest in communities to achieve greater financial success.

Promoting Financial Success with MiWealth

"We're partnering with the Relentless Care Foundation on a model in east Chadsey-Condon for legacy Detroiters...that will allow those residents to not only have a say in what gets developed, but an ownership stake and an return on their investment in their community," said Hector Hernandez, Executive Director of MiWealth.

MiWealth

See how a grant from the Relentless Care Foundation is helping the Gaylord Area Council for the Arts teach leadership skills to 13-17-year-olds.

Crafting the Next Generation of Leaders at the Gaylord Area Council for the Arts

Support for the LEAD Program from the Relentless Care Foundation will not only help young people in Gaylord develop leadership skills and artistic skills, but will provide them a sense of belonging and a place to have their voices heard, said Lisa Marie-Tobin, formerly executive director of the Gaylord Area Council for the Arts, and now executive director of the Gaylord Downtown Development Authority.

Gaylord Area Council for the Arts

A guide to understanding how mortgages can help train you to save better

Mortgages as Forced Savings?

Homeownership is the epitome of the American dream and is at the center of many individuals’ long-term goals. Although people might rent for a period of time, often earlier in life, many Americans desire to eventually own a home. It may all sound like sunshine and rainbows, but owning a home comes with a lot of responsibilities and benefits.

Simply put? Owning a home can be a prudent choice. After all, real estate has been an enticing asset over the last few decades, where supply has often been lower and demand high—and many times, we see prices reflecting this. Mortgaged homes can become "equity rich" as home prices boom.

In fact, an environment like this might make you wonder if owning a home and paying a mortgage is even a true expense. After all, if paying down the principal on your balance is something that adds to your equity in the home and your net worth, can we think of that mortgage kind of like a forced way to save, or is that 

 come with many monthly expenses that do nothing for your net worth—things like interest payments (which is what you’re mostly paying early on in the loan, anyway, due to a mortgage’s amortization schedule), property taxes, maintenance, and PMI if you don’t have an attractive loan to value (i.e., “LTV”) ratio.

On the flip side, the money that goes toward paying down your principal directly benefits your net worth in 

 cases. This is because you’re adding to your ownership stake of an asset that holds value with each payment made. So it’s not just money being thrown down the drain on an empty recurring expense. This growth is much easier to understand when real estate values are going up.

The pros and cons of using real estate as a plan to save

If you look at your monthly housing expenses as a forced savings, we recommend you consider the advantages and disadvantages before deciding to lean too heavily on it.

The pros of using your mortgage as a forced savings tool

: The most apparent benefit of paying down your principal is that it adds to your net worth by way of increasing your equity in the home. It also helps slowly create more financial stability and leverage as you inch closer to owning a home outright, which greatly reduces your expenses and increases your wealth.

On the more daring side, paying down your principal and viewing it as “savings” can also eventually give you access to that equity by way of a 

. Can these loans be beneficial? Definitely! Especially in times of crisis or to if you’re hoping to make some 

. But, don’t jump in too quickly! They can also be dangerous in certain situations.

The cons of using your mortgage as a forced savings tool

If we take this idea of treating our mortgage like a 

 too far, we could easily begin to neglect regularly putting money into an actual savings account that we could readily access at any given time. Sure, it’s nice to think of your home in that way, but taking it to the extreme is never a good idea. After all, we all need a rainy day fund when an emergency strikes!

Elsewhere, equity or, “savings,” in a home is never something that’s set in stone. Home values fluctuate constantly, and a major market swing could quickly wipe out that equity.

What happened back in 2008 is a prime example of this. Lenders were handing out mortgages like candy to anyone asking, many of those being ARMs, and when those interest rates adjusted, many borrowers could no longer make the mortgage payments they could hardly afford in the first place. This, along with many other reactions led to a domino effect collapse of the housing market. And, sure enough, prices went tumbling. Homeowners who’d previously had equity in their homes were now upside down, owing more on the loan than the home was worth. Their “forced savings” account was now underwater.

How to use a mortgage properly—and how to protect yourself

Leaning too heavily on your home for savings can result in a nightmare situation circa 2008. In that situation, if your mortgage goes under, you don’t have any extra cash to help pay down the principal. At this point, you’d be staring down the barrel of some unpleasant options like refinancing, selling the house, selling through a short sale, or worst case, foreclosing.

As we can see, planning your finances and thinking through scenarios—even, no especially, if they’re scary!—will help you to avoid them. By diligently paying down your mortgage, and maybe even paying a little extra whenever you can, while also saving religiously, you can very likely avoid disaster.

But hey, we get it. When inflation is high, things are 

! The markets can be turbulent, and these times are highly uncertain. With all this going on, it can certainly be tempting to tell ourselves it’s okay to save a little less because our house is doing it for us, but we know better than that.

Being prepared is key to financial success

Ultimately, preparation is just as crucial here as it is in all financial situations, if not more. Whether we’re just 

 or something to invest in, it’s helpful to think of the future of those assets. The reality is that, in an ideal situation, we get to pass our assets and estates down to our heirs one day, meaning they’re important assets to protect.

Plan ahead with your finances when buying a home. Only buy when you can, and what you can comfortably afford. Take pride in the fact that each payment makes you wealthier, but don’t get too proud to make time for the other necessities of saving, investing, and budgeting for the future.

At Community Financial Credit Union, gratitude and acknowledgment are at the heart of our leadership approach, fueling team morale, collaboration, and innovation to tackle challenges and inspire growth in times of change.

A Joyful Approach to Leadership: Gratitude and Acknowledgement as Catalysts for Change

Last year at the World Council of Credit Union Conference, I was asked by multiple credit union colleagues, “How are you moving so fast at Community Financial”? My answer surprised them. It was simply “gratitude.” When we show up for our teams, show them that we care, and share in gratitude for each other and our work, incredible feats can be tackled rapidly.

In today's lightning-speed revolution with artificial intelligence and digital transformation, layered with economic uncertainty, credit unions face unprecedented challenges and opportunities. To stay ahead of the curve, leaders must not only adapt to change but also inspire and motivate their teams to do the same. As Richard Sheridan emphasizes in his book "Chief Joy Officer," "Joy is the fuel that powers a high-performing organization." By fostering a culture of joy, gratitude, and acknowledgment, credit union leaders can create a positive and supportive work climate that empowers team members to thrive and drive innovation.

When team members feel appreciated and recognized for their contributions, they are more likely to be engaged, motivated, and committed to their work.

A culture of gratitude fosters a sense of camaraderie and belonging, making it easier for teams to work together effectively and achieve shared goals.

Grateful team members are more likely to provide exceptional member service, leading to higher satisfaction and loyalty. A 2019 

 found that 81% of employees surveyed felt motivated to work harder when their boss showed appreciation.”

A positive and supportive work environment is highly desirable to potential team members, making it easier for credit unions to attract and retain top talent.

How Credit Union Leaders Can Implement Gratitude and Acknowledgement

Regularly communicate your appreciation for the heart and hustle of your team members. Your appreciation should be crafted with authenticity.

Be clear and specific about what you admire and appreciate about your team members' work.

Celebrate both individual and team accomplishments, no matter how small. The power of appreciation at a collective level was a common theme throughout the book “Chief Joy Officer.”

Recognize outstanding contributions in team meetings, via the intranet, or on social media. Please be sure to take note of your team members' preferences. My 

 shows I have an aversion to recognition, and even more so with an audience. That doesn’t mean always avoiding public recognition, but it is important to be cognizant of how that will make each individual team member feel.

Foster a culture where team members can acknowledge and appreciate the work of their colleagues. At Community Financial, our organizational development team implements this through a platform on our intranet, where team members can easily share their appreciation for each other and send each other points that can be used later to cash in for gifts.

Get Inspired

Guide

When to Consider a 529 College Savings Plan?

Guide

What's the Right College Savings Plan for My Child?

Guide

How Childhood Affects Financial Habits

News

Cooking Up Recipes for Success at Detroit Food Academy

News

Advancing Affordable Housing Development with CEDAM

News

Working Together to Build Affordable Housing in Northeast Michigan

News

Fostering Independent Living with Crossroads Industries

News

Tapping into Local Expertise at the Plymouth District Library

News

Promoting Financial Success with MiWealth

News

Crafting the Next Generation of Leaders at the Gaylord Area Council for the Arts

Guide

Mortgages as Forced Savings?

Thought Leadership

A Joyful Approach to Leadership: Gratitude and Acknowledgement as Catalysts for Change