How CFP® Saves on College Education
January 18, 2023
We’ve all heard the flight attendant’s warning… put your mask on in front of your child! You need to make sure you are saving for retirement. I always like to point out that there are student loans that can be used to help with college expenses, but there are no “retirement benefits.”
Just the thought of becoming a parent raises concerns about how to save for a college education. In 2022, The average American pays about $100,000 to $200,000 for four years of college educationCollege costs a lot of money, so the sooner you start, the better.
Retirement benefits are also a big expense. That’s why retirement savings plans take precedence. Before you consider saving for your child’s college education, make sure you’re making regular annual contributions to an employer-sponsored workplace retirement plan or other retirement account. The best strategy is to have a plan that allows you to save for both retirement and college.
Below is a step-by-step checklist to help you develop a plan to reach your college savings goals.
- Know how much college costs
- College costs vary greatly. Decide whether you want to save at an in-state public college, an out-of-state public college, or a private college.
- Decide how much of your college expenses you want to cover and how much you can afford. Do you pay 100% or does your child have to pay part of the cost?
- Calculate how much you need to save to reach your goal.
- Open a parent-owned 529 plan
- With this type of account, you can grow your savings tax-free, and if you use that money to pay for college expenses, your withdrawals will also be tax-free.
- Some states offer tax credits for donations.
- Choose the right investment option depending on how long it takes for college costs to start. The longer you wait before you need access to funds, the more aggressive your investment strategy can be.
- Learn more about 529 plans here.
- start saving
- The best thing you can do is start as early as possible and give yourself time to grow your savings.
- Set up automatic contributions and put money in regularly.
- Offer your family and friends the opportunity to donate to the 529 Plan on birthdays, holidays, or other special occasions.
- Review plan and adjust yearly
- As time goes on, your child’s educational needs will become clearer, so adjust your plans accordingly.
- Review your budget and, if possible, increase your contributions with raises and bonuses.
A colleague of mine at MainStreet shared some great information on saving for college. You can check out their work here to get more ideas!
Saving for you and your children’s future is possible! If you would like to create a college savings plan or want to know if you are on track to reach your college savings goals, please contact us. We are happy to help.