529 Plans Without The Fossil Fuels

Pump Jack, Oilfield, Oil, Fuel, Industry, Petroleum

The most popular way we have to save for our children’s future education is destroying their future.

A 529 savings plan is a tax-advantaged savings plan designed to help pay for education. There are also prepaid tuition plans set up under the section 529 tax rules, but this article is focused on 529 savings plans, and will be what I mean by “529 plans” for the rest of the article.

The money in 529 plans can be used for college as well as K-12 education, apprenticeship programs, and paying off some student debt.   Savings plans grow tax-deferred, and withdrawals are tax-free if they’re used for qualified education expenses.  Each state (and DC) has its own 529 plan, but you don’t have to live in a state to participate.  Many states offer additional tax benefits to local residents.

The problem with most 529 plans is, like 401(k)’s, the plan sponsor chooses the investment provider and the investments available within the plan.  This is a good thing in that a limited number of well curated investment choices can help unsophisticated investors make investment choices that are appropriate for college savings goals.  For example, New York’s plan offers both age based options and individual portfolios color coded by risk and potential reward. These portfolios are built from Vanguard’s low cost index mutual funds, which are also a good choice for unsophisticated investors interested solely in maximizing their investment returns.

Paved With Good Intentions

In short, New York’s 529 plan, and most of the other plans I have looked at, are well-designed to help parents and grandparents save and grow their money for a child’s future education. They also help destroy the future planet that child has to live on by investing in fossil fuel companies.

Fortunately, the ability to choose between 51 different plans means that no matter where you live in the US, you do have a few environmentally responsible options.

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts (ESA) are similar to 529 plans in that they grow tax-free and the money can be withdrawn tax-free for qualified education expenses, but these can be set up as brokerage accounts, and so can be invested in any fossil free mutual fund or stocks that you choose.  Unfortunately, you can only contribute $2,000 a year to these accounts, which may not be nearly enough to pay for four years of college (and possibly high school or K-12 education) at today’s prices, even if you start saving the year the child is born.

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Disclosure:  I own VTSAX and PRBLX through my grandsons’ 529 plans . 

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