By Troy Montigney, Vice President, Ascensus
Automation has the power to change your life. No, I’m not talking about artificial intelligence (thankfully, that’s a conversation for another time and place) – rather, a time-tested behavioral trick: investing through payroll direct deposit.
Much like your employer might support your retirement and healthcare savings needs by pulling 401(k) and health savings account (HSA) contributions from your paycheck, you can consider taking the same approach to saving for education. 529 plan contributions for your loved ones can be made by direct deposit, all before your take-home pay is deposited into your checking account.
My experience
When I first started saving for education, I made an initial, one-time deposit and patted myself on the back. “I’m YEARS ahead of the game!” I thought. That momentary high soon gave way to doubts. When should I make my next contribution? Can I be doing more? How much is college really going to cost in 18 years?
By this point, I was used to directing my pay in multiple directions for various needs. Thankfully, my employer’s payroll process allowed yet another account to be added to my deposit instructions, and the 529 plan I use offered a smooth experience and clear information to help establish the link.
Over five years have passed, and I’ve never touched this piece of our financial puzzle again.
Tuning out the noise
Many of the people I’ve looked up to in my life subscribe to a “control what you can control” mindset. We’re all part of a complex global economy, and headlines of the day, especially those concerning our wealth and pocketbooks, can be distracting at best and panic-inducing at worst.
Amidst literal swings of markets, payroll direct deposit lets you control what you can control. Choose your education savings goal and fearlessly march towards it, without regard for everything else you might hear over dinner conversations or encounter in your Instagram feed.
Dollar-cost averaging with an assist from direct deposit
While there’s some debate about whether it’s better to make periodic, large lump-sum investments or smaller, recurring ones, I’m a fan of the latter because they help us overcome the mental blocks I just described.
By definition, investing at the regular interval of your paychecks means you will buy in when the market is near its all-time high, when it’s pulled back a bit, and everywhere in between. Over time, you can avoid the impulse to time the market strategically. Spoiler alert: this doesn’t always work out, and if you’re worried about timing your entry point, you’re more likely to try to time your exit as well.
Maximizing current state tax benefits
While the long-term, potential tax-free growth of 529s is their most impactful benefit, up-front tax incentives for contributions are made available to taxpayers in 37 states and the District of Columbia. In most cases, these are capped at a specific amount per taxpayer or each beneficiary for whom they are saving.
Making your 529 contributions via payroll direct deposit can let you carefully and gradually work towards maximizing current state tax benefits, instead of scrambling before a year-end or Tax Day deadline to “hit your limit.”
Our family’s contributions are designed in just this way: split evenly between our two children (since our home state’s incentive is per taxpayer rather than per account beneficiary) and totaling a little more than the state tax credit limit annually.
Direct deposit doesn’t require a large paycheck
In recent years, most 529 plans have lowered their minimum contributions to make saving for education a possibility for almost anybody. The most common minimums are $10 or $25, but many plans have no minimums for contributions made via payroll direct deposit or any contribution at all.
That’s all to say: you can do this without a ton of income to spare.
Make no mistake, it’s not always convenient to have another large chunk of my paycheck disappear. But as seasons of heightened spending come along, or unplanned expenses are confronted, we have taught ourselves to pull back elsewhere rather than sacrifice our commitment to saving for our kids’ education.
This feels empowering rather than restricting. In sticking to our plan and continuing to use payroll direct deposit, I trust that we are investing in a future with less worry and more hope (no matter what happens with AI)!
About the author
Troy Montigney is the proud father of 529 Day baby Sophie and her younger sister Molly. By day, he is Vice President of State Retirement Programs at Ascensus. Previously he served on its industry-leading 529 team, which helps over 8 million people save for education via 51 plans serviced across 31 states and the District of Columbia.
Please note: A plan of regular investment cannot assure a profit or protect against a loss in a declining market. This testimonial is not necessarily representative of the experience of other investors and is no guarantee of future performance or success.