For young families, the immediate cost of raising a child can be testing financially. Just when you thought you were in the clear from student loan repayments and your never-ending car lease, a hungry mouth appears with countless sleepless nights and a hefty price tag attached. But diapers, baby formula, and stuffed toys aren't the only financial burdens parents should worry about.
In the hypercompetitive world we live in today, a post-secondary degree is essential to earn a foothold in the workforce. Parents have to start preparing a college fund for their children when they are toddlers, and it is no small fee we are talking about either. The non-profit College Board reported that "the average cost of a year of college is $8,893... If you go out of state, that amount will almost triple ($22,203), and the average cost of attending a private university is $30,094"
- Combine this with the fact that "children born today could end up paying up to four times the current price for tuition if inflation keeps up"
- and the ingredients for an insurmountable load of debt can be quickly envisioned.
So how on earth will you be able to afford this?
First of all, be proactive - time is on your side! Senior vice president at Ascensus College Savings, Peg Creonte explains that "many parents don't save for their kid's education because they think the goal is unachievable," 3. However, these tips should put you and your children in good stead the moment they set foot on campus.
Educate your Children
Teaching your child the value of money is essential when planning for school. As they begin to have part-time and summer jobs, ensure that they are putting at least a small portion away towards college. In doing this, your children will already learn financial management skills in preparation for the shoestring budget of college life.
The 529 plan should be the backbone of your school savings. This plan is specifically designed for college and qualified withdrawals are not subject to federal tax. Nearly all states provide 529 plans, many of which also offer tax incentives! If your child already has a school in mind, you can prepay tuition at a specific school with this plan. As tuition fees are on the rise each year, paying at current rates prevents inflation.
Research Cheap Alternatives
There are plenty of tricks to mitigate the costs of college. If your child will rely upon financial aid, leave any big savings accounts in your name to avoid financial aid analysis. The less money that is in your child's name, the more lenient financial aid will be. There are also various credit card options that provide up to 2% of purchases into your 529 plan with zero annual fee.
So what is the best way to keep track of your savings? The ‘2k rule' has become an increasingly popular option for parents to ensure their college finances are in check. Fidelity Investments note that you should "Multiple your child's age by $2,000 to stay on track to cover half the average cost of a four-year, public university" 4. This regular reminder provides a simple starting point for parents to pursue their saving goals.
*Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2022 Advisor Websites.