Posted by Matt
Trying to be financially responsible is hard.
I'm finally getting around to setting up an Oregon 529 account for my son, or rather I will be when I get home tonight and can dig up his social security card (required for registration). The first step of the registration is reading the plan guide. It's 40 pages!
Mostly it contained things that I had already read about when doing my initial research. The only decision left to make was which type of fund to use. My first thought was to go with the "years to retirement" option. With this choice, you just indicate when you expect your child to start college and the plan administrators automatically balance the allocations with the appropriate level of risk/return. Our son would start off in the "10+ years to college" fund, which aggressively pursues growth given that there is more time to recover from any economic downturns. When he gets closer to college age, he automatically gets switched to the next fund (7-9 years) which is intended to be less risky and provide lower returns. The rebalancing continues in several stages all the way up to the day college begins (and beyond, via the "in college" fund). This is very similar to the way target-date retirement accounts work, and it makes things very easy.
I'm also considering a plain-vanilla index fund option. The returns have actually been slightly better and the expense ratios are lower to boot (as is normal with all index funds), but both are within the recommendations I have previously found (<1% annually). If we go with this option, I'll probably want to switch it over to something more conservative as college gets closer. Knowing me, I'll probably be watching it every year anyway, so that's not too big a worry.
My wife and I are both pretty risk-averse, but we'll have to talk it over tonight when I finally set the account up.
Oh, and I did find one other thing that will be interesting for at least those grandparents who still like to give savings bonds at birthday time: it is possible for people other than the account owners to contribute directly to the account. I'll try to get more details for how that works into a later post.
This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.