Does it feel like your child has grown up far faster than you ever expected? Are they barreling towards their college years, yet you have yet to figure out how you are going to help them pay for all of it?
You definitely have quite a bit of company.
It seems that for every parent who has been saving for their child’s college tuition since before they were old enough to walk, there are close to ten parents who have no idea how they are going to come up with the money. Savings have taken a hit, tuition prices are skyrocketing, and your son or daughter is beginning to dream of a dorm room and frat parties.
You are already spending unreal amounts of money on entertainment, clothing, food, taxes, and your mortgage, so saving for college seems like the last possible thing at the moment. Add onto that how complex and confusing college savings programs can be and it seems like the whole issue is a lost cause.
Luckily, we are here to help.
While your income, tax bracket, and amount of savings you already have will determine which savings program might be best for you, there are a number of tips that can help you start saving for your child’s college today.
One of the reasons that you may be stressed about paying for your child’s college right now is the fact that you have put it off for this long. You may feel that if you haven’t already started it now, why rush into it at this very minute?
However, compounding means that the money you save right now will be worth a lot more a few years down the road. Even if you just start small and save anything you can right now, that first step means your child will have to borrow less in the long run.
Avoid Risky Investments
Some parents who are worried about the cost of tuition end up jumping into investments that can lead to long term loss. The hope of hitting it big is tempting, but is often simply not worth the risk. If you can’t afford to be left with less money in savings if things were to go wrong, then you have to play it safe. If your child is under the age of 10, then you can safely invest in stock funds, but for the most part, you always want college savings to be in bonds or cash by the time they are in high school.
While nothing quite has the same potential as stocks, you are far better off just saving more then risking it all on a hunch.
529 Savings Plan
If you base your decision on recent press, then you would probably laugh at the idea of investing in a 529 savings plan. There have been a number of experts bashing plans as they point out hidden fees, poor options, and high expenses. But when you consider the fact that 529s offer great tax benefits and big contributions, they are often ideal for people who begin saving rather late.
You just have to choose carefully.
Not all 529s are created the same, so you have to consider every option before settling on a certain plan. For example, the 529 prepaid programs allow you to lock in the rate of tuition as it is today but don’t cover the cost of tuition if your child leaves the state for school. 529 savings plans can be used anywhere in the United States, and there are no restrictions on your earnings. While some 529s offer benefits such as state-tax breaks, there are many variables to consider, and you need to shop around everywhere to be sure you pick the best plan.
The 529 plans in Utah are considered to be some of the best, while Nebraska and Virginia also offer some impressive programs that should be looked into.
Time to Be Cheap
If you’re running low on time, then it is important to be as thrifty as possible and avoid as many fees as possible. Bonds and cash offer low returns, which means funds can cut down quite a bit on the amount of savings you end up with. Keep an eye on stock funds that often charge less than 1% a year in fees or search out bond funds that offer fees lower than 0.75%.
On the same token, be weary of brokerage fees and other administrative fees in order to maximize your investment.
Focus on the Positives
While you may be down on yourself or frustrated that you don’t have a lot in a college-savings funds, there are often other resources you already have that you can tap into. Many homeowners are sitting on quite a bit of home-equity, and you may even be eligible for a tax break on a home-equity loan.
In the same mind-set, parents can also opt to tap into IRAs to help pay for college depending on the type that they possess. In fact, if you use the money to pay for education, you can avoid the tax that usually comes with any withdrawal. Just be prepared to make up for the loss in retirement savings down the road.