How a CFP® saves for college education expenses
We have all heard the flight attendant’s warnings…put your mask on before your child’s! Likewise, you want to make sure that you are saving for your future retirement before you start to save for your children’s future. I always like to point out that there are student loans that can be used to help with college costs, but there are no “retirement loans”.
Just thinking about becoming a parent, sets off worries about how to save for a college education. It is all over the news that college costs are rising at a quick pace. In 2022, the average American paid between about $100,000 – $200,000 for a four-year college education. College is a big expense to plan for so the sooner you get started the better.
Retirement is a big expense as well. That is why your retirement savings plan is a priority. Make sure that you are making regular annual contributions to your employer sponsored retirement plan at work or other retirement account before you even consider saving for your kids’ college education. The best strategy is to develop a plan that will allow saving for both retirement and college!
Here is a step-by-step checklist to help you build a plan to meet your college saving goal:
- Learn how much college will cost
- The cost of college varies a lot. Decide if you will save for an in-state public, out-of-state public or private college.
- Decide how much of college costs you want to and can cover. Do you want to pay 100% or will your child have to pay for a portion of the costs? Will you help with an undergraduate degree only?
- Figure out how much you will need to save to meet your goal.
- Open a parent owned 529 plan
- This type of account allows your savings to grow tax-free and when you use the money to pay for college costs, withdrawals are tax-free too.
- Some states offer a tax deduction for contributions.
- Select the appropriate investment option depending on the time horizon until college expenses will begin. The longer you have until you need to access the funds, the more aggressive you can be with the investment strategy.
- You can learn more about 529 plans here.
- Start saving
- The best thing you can do is start as soon as you can to give your savings time to grow.
- Set up automatic contributions and put money in on a regular basis.
- Offer family and friends the opportunity to contribute to the 529 plan for birthdays, holidays, and other special occasions.
- Revisit your plan and adjust it annually
- Over time you will get more clarity on your children’s education needs so adjust your plan as needed.
- Review your budget and increase contributions with pay increases or bonuses if you can.
My colleagues here at MainStreet have shared great information about saving for college. You can check out their work here for more ideas!
It is possible to save for you and your children’s futures! If you want to develop a college savings plan or want to know if you are on track to meet your college savings goal, please reach out, we would be happy to help!