No. of Recommendations: 7
I have such a hard time with that. I cant imagine not putting away something for them. I contribute $150 for the three, which is less than what i had previously set aside pre-debt. I set up the 529's - in the same second I found out I was pregnant. I went from pee-stick to husband to mom to computer in a single heartbeat. I'm willing to suspend contributions for a month, maybe two, but 18 months....not sure. I also get a state tax deduction which is an added benefit.

The $150/month is $1800, or $600/child annually.

The opportunity cost for contributing to the 529s over the course of a year is that you would pay about $135 less in interest on your 15.24% card, and your balance at the end of the year would be about $1935 less.

The opportunity cost for paying the card is that you would lose the state tax deduction and each child's account would be about $625 less, for a total of $1875, if you assume an average return of 8% over the course of the year. If your marginal state tax rate is 7%, the deduction loss will cost you about $126, assuming you still have enough other deductions to overcome your state's standard deduction.

Net/net, you/your kids probably come out about $65 ahead for the year by contributing to the 529s instead of paying down the debt, with the assumptions I made. It doesn't take much of a decrease in either the marginal state tax rate or the rate of return before paying down the debt would come out ahead. So, this is probably one of those things that you can justify either way, depending on the assumptions you make.

But if you are serious about paying down the debt, you should really look at the numbers with your own set of assumptions before making the decision to contribute vs. pay down debt, and not just decide to contribute because you would have 'a hard time' not contributing.

AJ
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