Does it make you a bad parent to hope your kid’s team loses the final round at a weekend tournament so you can go home early? That was a question I wrestled with from the gymnasium stands as I cheered on my children at many a basketball game over the years.
I wasn’t really a bad sports parent. I wanted my kids to learn life’s lessons about winning and losing, teamwork, confidence and humility — all while working hard toward a shared goal with their closest friend. But take it from me: Sometimes we parents get caught up in the hype as we try to keep up with our kids’ extracurricular activities.
A 2019 TD Ameritrade survey found that 27% of parents spend $500 or more on their children’s athletic costs each month, and 7% reported spending over $1,000 per month — or $6,000 to $12,000 a year. 1
That’s quite a chunk of change, but I’m not surprised. In my day, it took little more than a baseball bat, a ball and a field to start a game — but today, equipment, uniforms, camps, private lessons, travel teams and tournaments, have some parents paying more and more money to develop their kids’ skills.
What’s behind all this spending? The pursuit of a college scholarship, of course. A 2019 TD Ameritrade survey revealed that 62% of parents expect college scholarships to cover more than half of their child’s college tuition.1 Furthermore, 41% of parents believe their child will become a professional athlete, and 34% hope their kid will make it to the Olympics. In reality, only 2% of high school athletes will receive a college scholarship of any kind, even a partial one.1
Here’s the reality, parents: While organized sports offer a great way for your child to learn valuable life lessons and develop their skills, they’re far from a scholarship guarantee. To truly set your child up for success, you have to start saving for college as soon as possible — and I believe a 529 plan can help.
How can a 529 plan help you fund your child’s education?
529s are tax-advantaged savings plans designed to help cover future education expenses. Savings can be applied toward tuition, books and other education-related expenses at qualifying two- and four-year colleges and universities, as well as US vocational-technical schools and eligible foreign institutions.
529 plans offer several compelling features that can help parents save for the future:
- Owner control. With a 529 plan, the account owner maintains complete control of the savings, from determining when withdrawals are taken to approving the amount distributed each time. The owner can also change the plan beneficiary to another relative at any time with no income tax penalties2 — so if one of your children beats the odds and earns a college scholarship, you can use the funds for their sibling instead.
- Tax advantages. Although 529 contributions are after-tax, earnings grow on a tax-advantaged basis and withdrawals are tax-free if the funds are used for qualified education expenses.3
- Location flexibility. You are not limited to your home state’s 529 plan. Regardless of where you live or where your child will attend school, you can choose any state’s 529 plan — so an Illinois resident could use the Rhode Island 529 plan to pay for college in Texas.
- Multiple investment options. 529 plan account owners aren’t limited to one type of savings plan. 529 plans like CollegeBound 529 offer a variety of portfolios designed around different savings goals and timelines, including age-based, target risk and individual portfolio options.
Scholarship dreams or not, it’s never too early to start thinking about a college savings plan. Whether your child is starting their first year of T-ball or suiting up for the varsity team, the best time to start a college fund is now.
1 Source: TD Ameritrade, “Sidelined: When Kids’ Sports Compete with Parents’ Retirement Planning,” Debbie Carlson, July 5, 2019
2 For beneficiary changes to occur without federal or state income tax consequences, the new beneficiary must be a family member of the current beneficiary. Please see the Program Description for a definition of “Member of the Family.”
3 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
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