Are you ready (to pay) for college?
For most parents, the thought of their child heading off to college and leaving their home is a scary one. It’s even more terrifying when you think about paying for it!
But saving for college doesn’t have to be a nightmare. By educating yourself on your options, knowing what you can contribute to your child’s education, and getting started, you can make the transition much easier on your family. So what can make the difference between college funding becoming a major financial setback or an temporary obstacle that has been overcome? Here are a few steps I have seen that lead to success.
- Start early. Ideally once the child has a Social Security number the next step is to open an account for college! By starting early it allows the money to work for you over time and puts saving at your “top of mind”.
- If you didn’t start early, start now. Don’t beat yourself up for not starting sooner, start now. It’s never the wrong time to make the right decision!
- Make automatic and regular contributions, even if small. Let monthly discipline work for you.
- Let grandparents and others know about your savings plan. Grandparents (or others) may be looking for an opportunity to participate in college funding for their grandkids. Make it easy for them by having a plan that they can contribute to if they wish.
- Try to save for at least the first two years of college by the time your child leaves high school. Funding all four years may be overwhelming, but if you can save for the majority of college it will ease the financial crunch when they head to school. Some of your expenses should drop from not having them in high school and you may be able to cash flow the remaining need.
- Communicate how much you will be helping or funding your child’s education to them early on. This will give your child an opportunity to work and contribute to their college funding plan. Give them time to start saving as well.
- Place your retirement planning ahead of college planning. The better financial position you are in allows you to provide more financial support to your child if you wish. Don’t short-circuit your own retirement plans.
Should you use a 529 Plan, a Coverdell Education Saving Account, a Roth IRA, or a Uniform Transfer to Minor account? We can help you make the right decision on what option or combination of options accomplish your goals. There are big differences and some pitfalls you want to avoid. The types of accounts all differ in:
- What happens to the money if my child doesn’t go to college?
- When does my child gain control of the money?
- Do I get a tax deduction and is the account taxed upon withdrawal?
- How is the money treated for financial aid purposes?
- Can it be used for private high school?
- What happens to the money if my child receives a scholarship?
As you can see, there is no “one-size-fits-all” when it comes to saving for college. And it is important to select the right savings account. Contact us for more information on choosing the right type of account to save for your child’s education costs.