It’s back to school time and we are one year closer to your children starting college! Are you worried about funding their education? Nervous it may be taking funds away from your retirement savings? The good news is that there are many ways to pay for college so you have options! It’s important to keep a realistic plan to achieve specific college funding goals and genuine expectations. Keep some of these factors in mind when creating your plan:
How much of your child’s education do you want to cover?
Do you think you should pay the entire cost of tuition? A fraction? Are the kids on their own? Many parents fall somewhere in the middle, contributing what they can without compromising their own financial situation or future personal financial goals. Whatever the answer is, it’s important to discuss the plan with your child and let him know exactly what he should be expected to cover as an investment towards his future.
Which school is best for your child?
There are thousands of schools throughout the country, each with different attractive aspects. It’s important to determine the purpose of higher education for your children. If you have decided to pay half of your child’s education expenses, it’s crucial to know if that 50% will be closer to $15,000/year at a state school versus $35,000/year at a private school. If you and your child are taking out large loans for a name-brand private university, will your future grad be able to repay those loans based on whatever major he or she chooses?
Where to start saving?
Once you decide how much you are comfortable contributing to your child’s education, the next question is where to save that money. If you are starting when your children are young and have over a decade before those funds will be put to use, it’s important to invest that money. Investing, although there is a risk of loss of principal, could help grow the funds through compounding returns. Many people choose 529 Plans as the investment vehicles for this goal because they offer tax advantages that make them more appealing. However, if your child does not use the funds for qualified education expenses, there will be a 10% penalty and taxes on the growth. Check out our pieces on 529 Plans in the Jacobi Media Center for more detailed information and comparisons.
As with any investment, the earlier you start saving, the more time your money has to grow. It’s never too early or too late to start thinking of a college savings plan. Whether your child is a toddler or a teenager, the best time to start saving is now. Give us a call today to review your financial projections and get you on the path to success. Your Jacobi Team is always here to walk through the journey with you and to help you reach your financial goals.