NEW YORK (MainStreet) Saving for college doesn't have to begin at birth: future parents and grandparents are socking money away into college saving accounts long before a child is born.
"I started saving before I had kids and before I met my husband," said Christine Wheeler, a 31-year-old mother of two who opened a college savings account after graduating from college. "I thought if I don't end up having kids, then I can use it for myself for grad school."
Wheeler, a savvy, young saver who works as an executive assistant in Olympia, Wash., began stashing money aside into her 529 account, a tax-deferred college savings plan, in her mid-20s -- five years before the birth of her first son.
The young mother studied at California Pacific University and accrued some student loans, which influenced her to start tucking away money each month for graduate school or her future children.
"I instantly thought, 'I am 22 years old fresh out of college and I don't have a job, and now I have these huge loan payments to make?'" Wheeler said. "When I heard about the Washington Guaranteed Tuition program, I thought that I'm going to start saving before I have kids."
Unlike most parents who open an individual 529 account per child, prospective parents or future grandparents can open an account with no beneficiary listed. The account holder is in charge of the funds, according to wealth advisors.
529 accounts have some flexibility and can be held in either the future mother or father's name with the account holder listed as the beneficiary. For saving, it's best to hold one account and list the beneficiaries later, said Linda O'Connor, a wealth advisor at Wells Fargo Advisors.
Prospective parents who start saving $150 a month at a 7% interest rate a year before the birth of their child, can expect to save over $60,000 by the time the child graduates from high school.
Most people set aside $200 or $300 dollars a month for college savings, O'Connor said.
"You may have the ability to grow [the account] for 20 plus years depending on when you have kids," she said.
"The one thing that I have noticed...in the last year in particular is families are starting earlier," said Mary Morris, chair of the College Foundation, a non-profit organization that promotes college saving strategies.
The average cost of tuition, board and fees for a full-time student at a four-year college in the U.S. is $23,066 per year, according to the U.S. Department of Education. And, the sticker price for college tuition rises between 2% to 3% each year.
"In 20 years, you might be looking at $700,000 in expenses for three kids for colleges," the Wells Fargo wealth advisor said. "So, what a lot of people are doing is you can literally start at 529 before you have a child."
Parents of 20- to 30-somethings are also setting up accounts for future grandchildren. Around 10 to 20% of 529 account holders are held be grandparents, said Betty Lochner, vice chair of the College Savings Plan Network,
"You can plan ahead for grandbabies and save quite a bit of money," Lochner said.
Lochner had a 529 prepaid tuition account for her two children who attended college in state in Washington. After her children graduated from college, she rolled her payroll deductions into a new account to save for future grandchildren.
"I just have that $219 a month going into an account for future grandchildren and I don't even have any grandchildren," said Lochner.
529 accounts have more flexibility than the other tax-advantaged accounts and come with estate-planning perks-- especially for prospective grandparents, financial advisors say.
"Say you're grandparents and you have an IRA," O'Connor said. "They can literally take the money out from their individual retirement account [IRA] that they are required to take out and put that money directly into a 529 account for a [future] grandchild or some other relative's child without incurring taxes."
With the flexibility of 529 accounts, it's a good idea for prospective parents to save early for unborn children since the account is tax exempt and the savings accrue with the set interest rate.
"It doesn't necessarily have to be for your child -- it can be for someone else's child," O'Connor said. "Or it could be for yourself, if you want to go back to law school or go to graduate school."
Wheeler who started with several dollars a month into her 529 account with the the intention of attending either graduate school or saving for future children. She's now saving around $80 each month in her college savings fund for her two small children.
"To be able to tell my kids that I thought of you even before you were born and it's a gift," Wheeler said. "I'm not sure how much it's going to be, but it's something."
--Written by Farran Powell for MainStreet