College Planning
The projected national average cost for a four-year state college education, if starting in 2025, for tuition, books & fees is $110,400. Add room and board to arrive at over $200,000. And that assumes in-state tuition. Out-of-state or private university will be much higher. While you can get financial aid and loans, that level of cost can overwhelm any mom or dad. Investing years in advance for College is no longer an option for most families.
Starting to save early is a critical step to help avoid chaos later. You don’t need to have the total amount when a child starts college, because most of us have to use several sources like grants, loans and working (yes, there are many students on campus that hold down a part-time job). But how do you save for this future expense?
Today, there are good options for investing for college. The existence of 529 College Savings Plans provide many advantages for families:
1. The funds are tax-free when withdrawn and used for qualified education costs like, tuition, books, room and board.
2. The funds are in the account-owner name (usually the parent) and held for the beneficiary. That means your 19 year old can’t withdraw the money to throw a party for friends. Only the account owner can make a withdrawal – and that check can be made out directly to the school.
3. People other than the owner can make a contribution to your future geniuses’ 529 account. That’s a great gift idea for Grandma or Uncle Slim.
4. Should a child not go to school, the beneficiary can be re-named to another sibling in the same family. You can even hold the account open to see if a child decides to go to school later in life, or name a grandchild.
For most families, state 529 plans offer a great way to save for college. Each state has a 529 plan with multiple investment options. You can use any states’ 529 plan, though some are much better depending on your family’s circumstances. There are situations where a 529 may not be the best choice for your family, but other options are available.
My sons started college before 529’s were created. One summer evening, I explained to a financial planner I was interviewing, that I wanted recommendations on how to plan for the boy’s college education. He started showing me charts, graphs and color brochures on investment alternatives. Then he asked me when the boys would be starting college. I calmly said, “The first son begins this September and the second starts one year after him.” There was a long pause, and then he said “How do you feel about robbing banks.” We had a good laugh. I had been preparing for that tidal wave called college for years. If not, his recommendation might have been one of my only options. You should start early to really get the maximum long-term tax and earning benefits. Of course, it’s never too late to get started saving, so call us at 972-664-9533 to discuss a plan for your family.
Ron Turner
Financial Planner