This post is part of an editorial series, “Money Matters.”
When my husband and I found out we were expecting our first child, we immediately told our friends and family the exciting news, started talking baby names, and opened a 529 College Savings Account. Isn’t this what everyone does? Well, maybe we are in the minority of being super planners (an accountant and an attorney).
Three things we can all agree on:
- 18 years sounds like a long time off, but the time flies.
- College is expensive now and is only going to be more expensive in the future.
- The time to start saving is NOW (and it is never too late to start saving).
According to the College Board, the average price of tuition for 2017 is $9,410 for a public four-year (in-state student) and $32,410 for a private four-year college. It is hard to know what it will cost in 18 years; many people say the trend of around a 6 percent annual increase will continue, while other reports think the bubble will burst at some point. What we can be certain of is the cost of tuition will be more than it is today.
The most popular way of saving for college is a 529 College Savings Account (named after Section 529 of the Internal Revnue Code that created them in 1996). The accounts can be opened with a financial advisor or most banking institutions have the ability as well. Plan maintenance fees vary based on if you do a direct-sold plan from the state or from a financial advisor; make sure to ask about these fees. Many accounts can be opened with a contribution as low as $25 per month. The earnings of these accounts are tax free, as long as they are withdrawn for qualifying expenses (tuition, books, room and board, etc). Unused funds can also be transferred to a different beneficiary (another child or even to a parent).
Another savings avenue used by some is a Roth IRA. It is definitely not preferred to the 529, due to its many limitations and rules (so I won’t go into detail), but has its benefits as it can be an account used for qualified education expenses now and retirement later. Depending upon a family’s financial situation and goals this would be something to research and/or discuss with a financial advisor.
Most all of us want to save for our children’s future education. Most all of us feel a bit daunted by the task and wondering how are we going to do it (or in the case of my own family, how are we going to do it, times three kids)?
- DO start now. Whether you have a newborn or a 13 year old, open a 529 account that has a low contribution requirement that is feasible for your family, reasonable maintenance fees, and start TODAY.
- DO set goals for contributions. Make them attainable but also aggressive. Figure out a long-term plan and stick with it.
- DO let family and friends know you are working on these goals. Many of us lament about the excess toys our children are given during holidays and birthdays. Offer up the idea that they alternatively can contribute to your child’s education. Even stores like Toys R Us and Babies R Us now sell Gift of College
- DO NOT let excuses get in your way. I don’t have a financial advisor. You DO NOT need one, direct-sold plans are easily attained and most of the time have lower fees! I DO NOT have a lot of money to contribute – every dollar counts! My child is already in high school, I DO NOT have time – start today!
- DO NOT stop contributing when your child turns 18. Unless you are absolutely certain you have plenty of funds for the next four, five, or more years of your child’s college (and possibly post-graduate) education, there is no need to stop the contributions. Keep contributing. Remember any unused funds can be transferred to another beneficiary.
- DO NOT forget about yourself. Although we do all we can for our children, we must also not forget about ourselves. Do NOT neglect your retirement for your children’s college funds. Scholarships and loans cannot be used to fund our golden years.