Learn How to Pay for College from Industry Experts
As kids head back to the classroom for another year of school, parents are reminded of the ever increasing cost of college tuition. Trends indicate tuition costs continue to rise 3.2% per year over inflation.
What does that mean for the average US family?
Assuming your child is still in elementary school (or younger), you will see an average of in-state tuition costs soaring well over 6 figures by the time your child attends college. If your child attends a private school or out-of-state college, you can more than double or triple that figure.
What can we do to prepare for these cost increases?
We’ve compiled a list recommendations from top financial planners across America. Read on to learn how you can plan for your children’s education.
1. Fund a College Savings Plan Early and Often
“Every dollar you save is a dollar you don’t have to borrow,” says Mark Kantrowiz, Senior VP and publisher of Edvisors.com. “And every $1 you borrow costs $2 by the time you pay back debt.”
Starting early also means having to save less in the long run because savings will grow from earnings. “If you start saving sooner than later about one-third of the fund’s size will come from earnings,” says Kantrowitz, but if you wait until the student is in high school “less than 10% will.”
What doesn’t come from earnings has to come from contributions.
2. Cut Current Expenses
This may seem like a pretty simplistic plan but you’d be surprised at how often this is overlooked. When saving for something as expensive as a college education, you’ll have to curb your spending habits a bit.
"If you assess your current financial situation and find places to cut costs, those savings can be immediately invested into a high-return savings account or invested in the market” Patrick Marek, Managing Partner of Marek CPA and Associates says.
Often times the easiest place to cut costs is entertainment and food. Track your budget and expenses and make informed decisions from the data.
3. Contribute to a 529 College Savings Account
Investments in these plans grow tax deferred and distributions used to pay college costs are free from federal income taxes. You can open plans outside your state but first check if your state’s plan offers full or partial deductions or tax credits for contributions. Thirty-four states plus the District of Columbia do, and six states allow deductions for contributions to out-of-state plans: Pennsylvania, Arizona, Kansas, Maine, Missouri, Montana and Pennsylvania. Virginia is not listed as a state that allows for out-of-state plan contributions.
Contribution limits are often above $250,000 but withdrawals can be used only for qualified higher education expenses such as tuition, room and board, mandatory fees and books. In Virginia, the contribution limit is $500,000 per beneficiary.
4. Have Your Kids Take AP Courses
John Marotta of Marotta Wealth Management recommends that you take advanced placement courses, which help prepare you for college-level coursework. You can save a good amount of money on books and tuition through doing these classes.
According to the Huffington Post, 90 percent of colleges and universities in the U.S. offer credits for some AP courses. Getting a head start on your college education could help you reach the finish line quicker.
5. Don’t Forget Your Own Retirement
Preparing for your child to go to college is a huge endeavor but so is your retirement. “Remember that no one will loan you money for retirement.” Marek states, “In a less than optimal scenario you can always borrow money to pay for your child’s education, that’s not the case for retirement.”
A combination of saving, tax advantage accounts, and proper planning will help you prepare for your children’s college expenses. Contact us today to learn how tax advantage accounts can help you be ready for one of the biggest investments of your life.