Rising Tuition Costs
College tuition is already one of the most expensive things on the market and the costs are only going up. With the option to help pay for their kids’ tuition or leave them to spend the rest of their lives paying back their student loans, many parents choose to help their kids out where they can, but that often leaves them with nothing left over for their own retirement.
A college financial planner can help you determine how you and your child can get the most out of your money when it comes to paying for college. Whether that means going to a state school, applying for every possible grant and scholarship, or plumbing the depths of financial aid, there are a variety of ways you can get the most out of your college savings.
Save Early and Often
The best financial advice is always to save early and often, and that’s especially true of college tuition. As the costs of higher education continue to rise, it’s never too early for parents to start saving up for college. If you wait until your kid is in high school, it’ll be much too late, so find a good financial advisor now to help you determine when and how is the best way to start saving for your child’s tuition.
Get a 529 Plan
A 529 plan is a savings plan sponsored by states, state agencies, and educational institutions, depending on the state. They are authorized by Section 529 of the Internal Revenue Code, which was designed as a way to encourage people to start saving early on for educational costs they might incur for their children in the years to come.
The returns you gain on a 529 plan are tax free, which makes them a great way to optimize the money you put in to pay for your kids’ educational costs. Just be sure to pay attention to the fees associated with your 529 college savings plan because those will cut into your returns. Every plan and every financial advisor will have their own fees, so plan accordingly.
You should also be aware that if you take money out of a 529 plan and end up using it for something other than educational expenses, those returns will be taxed with the addition of a 10% federal penalty. Because the plans are designed to encourage people to save up for educational expenses, they frown on people taking advantage of them without the intention of using the funds for educational expenses – so if your child decides not to go to college after all, know that you can still use the money in your 529 plan for other things (such as your retirement fund), but you will have to pay a price for it.
Because 529 plans are often sponsored by the state or state agencies, they differ from state to state, so pay attention to the rules and regulations in your state so you know what to expect. This is why it’s always a good idea to consult a financial advisor when looking into a 529 college savings plan – specifically a financial advisor in your area who is aware of how they work in your state and can advise you of all the taxes and fees associated with your state’s 529 plans.