Is a 529 account the first priority as a new parent?

Is a 529 account the first priority as a new parent?
 
What is a 529 account? Well, a 529 account is a tax efficient wrapper for your designated education funds for yourself or a beneficiary. Funds that are deposited into a 529 account grow tax free, so long as the deployment of capital from the account properly qualifies for eligible education expense. In short, instead of paying taxes on the gains/growth in the account (like in a typical brokerage account), all of the gains/growth are tax free if used for qualifying education- saving you money!

So, if you just had a baby is this account a priority? As virtually everything works in personal finance, it depends. It may be, but too often people take care of their wants before their needs. Before starting a 529 account for your new child, take inventory of what you currently have in your financial universe. Do you have a 3-6 month emergency fund built up? Do you have credit card debt that is weighing on you? Are you saddled by other high-yield debt monthly that could be paid off? Are you contributing to your retirement accounts at a reasonable percentage? If the answer to these questions is not adequate, then you should prioritize managing these financial situations first and foremost before diverting funds to a 529 account. Remember, if you need to claw back funds from a 529 account to service your daily life, there will be a penalty to do so. Also, your child will be better off with parents who are financially stable and no 529 account as opposed to ones who are not.

As a new parent, life insurance is a priority and estate planning in general should be at the top of your to-do list. 529 accounts are terrific instruments to tax-efficiently save for education, but it is always imperative to take care of the basic financial fundamentals in your life first. Just because your friends may be discussing the account for their kids at the latest birthday party does not mean it is always right for you at the current time. You have to take care of your priorities and run at your own pace. Once your financial fundamentals are met, then fund that 529!
 
Consult your financial professional for more information.
 
-Your friends at Red Oak Financial Group