College tuition rates have risen exponentially over the years across America. So many families and individuals seeking higher education are faced with financial challenges that often deter them from achieving their educational goals. An annual survey found that the average tuition cost for the 2021-2022 school year was around $38,000 (for private colleges) and around $10,000 (for public, in-state colleges). Inflation will only cause this to increase over time. Tuition, along with the costs of books & supplies, room & board, and additional expenses can make college seem impossible for many. Financially preparing for college as early as possible is key. Keep reading for things you need to know when financially preparing for college!
Financially preparing for your child’s college education
There are a variety of ways to financially prepare for your child’s college education, but starting as early as possible is essential. Many Americans choose to open 529 plans or Coverdell ESAs to fund college expenses. Investing in savings bonds or traditional savings accounts are better plans for certain people. Others choose to go the prepaid tuition plan route and apply for scholarships, grants, and/or student loans to pay for college. Always remember that getting financially prepared for college is a marathon, not a sprint, and savings accounts are not one-size-fits-all. Contact us today to speak with one of our financial advisors about which of these plans is best for your situation.
Being tax-smart when financially preparing for college
Although there are many different ways to financially prepare for college, some routes are tax-smarter than others. Financial experts say that one of the best tax-advantaged ways to save for college is with a 529 plan, which includes prepaid tuition plans. A Coverdell ESA is another popular option for a tax-smart college savings plan. Both of these plans allow money to grow tax-deferred with tax-free withdrawals when used towards education expenses. Remember that saving some money for college is better than nothing, and our financial advisors can help you choose the best plan for you.
College savings accounts
We’ve already mentioned 529s and Coverdell ESAs, but there are many other options for college savings accounts to consider and discuss with your financial advisor. Custodial accounts, like UTMA or UGMA accounts, can be used to hold funds for minors until they are of age to receive the funds. Mutual funds are investment portfolios that are managed by professionals to buy stocks, bonds, and other investments. Savings bonds and Roth IRAs are additional ways people save for college. Each savings account has pros and cons, so be sure to chat with a professional before deciding which is best for you.
Common mistakes made when financially preparing for college
Aside from not financially preparing for college altogether, there are smaller, more common mistakes that are made when financially preparing for college. Not considering the ROI of attending college or the financial fit when choosing a college can cause major stress years down the road. Many are guilty of over-borrowing, extending their timeline for repaying debt. Oftentimes, parents don’t truly understand what it means to be a co-signer on a student loan which can come back to financially hurt them. Students often fail to apply to scholarships early enough and fail to use the FAFSA. Everyone makes mistakes, and our financial advisors are here to help you avoid mistakes in the future!
Importance of preparing for college early
Preparing for college early is not only financially smart, but it also helps your child grow along the way. Preparing for college early teaches good learning habits like time management and organization. It also allows your child to experience real-time career development while discovering who they are and what they do best. Preparing for college encourages focused learning and excitement about learning. Additionally, talking to your children about the financial steps you’re taking for their education can increase financial understanding.
Getting financially prepared for college can seem like a daunting task when you look at the big picture. There are many different factors that go into financially preparing for college to consider. Contact us or visit our website today to speak with a financial professional about your financial plans for preparing for your children’s college education!
This article is meant to be general in nature and is not intended, and should not be construed as personal advice of any kind. 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. Please consult your financial advisor prior to making financial decisions. Dustin Johnson, CFP®, ChFC® is a Financial Advisor with U-Vest Financial®, a separate entity from LPL Financial, and can be reached at (727) 343-4200. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.