Saving for Your Child's Education
Saving for college can be a daunting, but necessary consideration for young families. You may still be paying back student loans, when your future student comes along. And this future student currently needs diapers, formula, and stuffed toys.
Parents have to start preparing a college fund when their children are toddlers, and the money needed is no small amount. The non-profit College Board reported that “the average cost of a year of college is $8,893. If you go out of state, that amount will almost triple ($22,203), and the average cost of attending a private university is $30,094” 1. Combine this with the fact that “children born today could end up paying up to four times the current price for tuition if inflation keeps up” 2 and you can see a future of debt.
How will you be able to afford this?
Be proactive - time is on your side! Senior VP at Ascensus College Savings, Peg Creonte explains that “many parents don't save for their kid's education because they think the goal is unachievable," 3. However, these tips should put you and your children in good stead the moment they set foot on campus.
Educate your Children
Teaching your child the value of money is essential when planning for school. As they begin to have part-time and summer jobs, encourage them to put at least a small portion away towards college. This will help your children learn financial management skills in preparation for the shoestring budget of college life.
The 529 plan should be the backbone of your school savings. This plan is specifically designed for college and is not subject to federal tax. Nearly all states provide 529 plans, many of which also offer tax incentives! If your child already has a school in mind, you can prepay tuition at a specific school with this plan. As tuition fees are on the rise each year, paying at current rates prevents inflation.
There are ways to mitigate the costs of college. If your child will rely upon financial aid, it is generally advisable to leave any big savings accounts in your name as opposed your child’s name to avoid financial aid analysis. Generally, the less money that is in your child’s name, the more lenient financial aid will be. There are also some credit cards that provide up to 2% of purchases into your 529 plan with zero annual fee.
So what is the best way to keep track of your savings? The ‘2k rule’ has become an increasingly popular option for parents to ensure their college finances are in check. Multiple your child's age by $2,000 to stay on track to cover half the average cost of a four-year, public university.4 This regular reminder provides a simple starting point for parents to achieve their saving goals.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.