College planning for your child is likely a thought when you’re pregnant, but college savings may not turn into action. It may not be practical to save now. You can use a holistic financial plan to tell you if and when to start saving for your children’s education.
Rising Tuition Costs
College tuition is already one of the most expensive things on the market. Unfortunately, the costs are only going up. The options are: help pay for your kids’ tuition or leave them to spend the rest of their lives paying back their student loans. Many parents choose to help their kids out where they can, but that often leaves them with nothing left over for their own retirement.
A college financial planner can help you determine how you and your child can get the most out of your money when it comes to paying for college. Specialized planners will discuss your means. Can you afford a state school? Should you apply for every possible grant and scholarship or plumb the depths of financial aid? College financial planners will help you find a variety of ways you can get the most out of your college savings.
Save Early and Often
The best financial advice is always to save early and often, and that’s especially true of college tuition. The cost of higher education continues to rise, so it is never too early for parents to start saving up for college. If you wait until your kid is in high school, it’ll be much too late. It can be difficult to know when and how much to save, so find a good financial advisor to help you determine a strategy that works for your family.
Maybe a 529 college savings plan is right
A 529 plan is a savings plan sponsored by states, state agencies, and educational institutions. States are authorized to create their own education savings policies by Section 529 of the Internal Revenue Code. Section 529 encourages people to start saving early for education costs for their children.
529 plan returns are tax-free, making them a great way to optimize the money you invest. However, you need to pay attention to the fees because they will cut into your returns. Every plan and every financial advisor has unique pricing, so plan accordingly.
Additionally, withdrawals from 529 plans for non-education expenses will incur taxes and a 10% federal penalty. The plans are designed to encourage people to save up for educational expenses. The agencies frown on people using them outside of the costs of education. Therefore, if your child decides not to go to college, using the money for other things (ie. your retirement fund) will include the penalty.
Because states or state agencies sponsor 529 plans, pay attention to the specific rules and regulations in your state. This is another good reason to consult a financial advisor when looking into a 529 college savings plan. You should look for a financial advisor in your area or one who is aware of how 529 regulations in your state.
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