While there are many ways to grow your savings, direct deposits from your paycheck offer predictable, gradual growth toward your savings goal.
Modern payroll systems have greatly enhanced a saver’s ability to direct paychecks electronically to their chosen account. My employer’s payroll system is self-service, which means I can log in to my employee portal and add up to 8 routing and account numbers, including for my 529 account(s). I control how much I send and can change it any time. I’ve chosen to send $75 to my 529 account each paycheck, then deposit the remainder into my checking account for bills and other life expenses.
It’s not just about ease. It’s about impact. Setting aside these regular contributions has helped me save $1,800 annually toward my family’s education savings goals. That monthly contribution has really added up. If I had directed the funds into a non-interest-bearing savings account, my account would have approximately $32,400 after 18 years of saving. That’s pretty amazing. But with compounding interest at approximately 6% in my 529 account, we’ll have closer to $58,000 by the time my son turns 18!
Payroll direct deposit is an important tool for building a 529. Annually, consider increasing your direct deposit amount by the cost-of-living allowance (COLA) increase you might receive and adding “bonus” contributions when you receive a bonus at work. Also, consider other methods, such as gifts from relatives, birthday bonuses, and other windfalls, to help build and grow your 529 education savings account.
In sum, contributions, small and large, add up. Having a consistent contribution stream through payroll direct deposit is a great way to establish the foundation and make progress toward your goal.
About the author: Lael M. Oldmixon, M.Ed., is the Executive Director of the Education Trust of Alaska, which offers Alaska’s three 529 plans: Alaska 529, the T. Rowe Price College Savings Plan, and the John Hancock Freedom 529 Plan. She lives in Alaska with her spouse, two children, and two dogs. Learn more about Alaska 529 at alaska529plan.com, the T. Rowe Price College Savings Plan at troweprice529.com, and the John Hancock Freedom 529 at jhinvestments.com/529.