Okay, you don’t need to read an article to know that college costs a lot more than when you went to school. Despite the breathtaking numbers, lots of kids still go to school and there are strategies to help accumulate the required funds.
To get started, let’s ballpark the amount of money we’re talking about. Suppose you need to accumulate $80,000 for a four-year education. There are lots of variables here. Tuition is rising or your child may choose to go to a more expensive school. On the other hand, your child may qualify for a scholarship, financial aid or may be able to help save for school or even work while attending.
Saving $80,000 is just like saving for any large purchase in many ways. The longer you can save and the more you can save in the early years, the easier it is to achieve your objective. Suppose you start saving $200 per month as soon as your child is born. Assume they start school at age 18 and graduate at age 22 and that you continue saving until they graduate (22 years). Investment returns will vary, but let’s assume you earn 3.5% over the life of the savings program. This will produce the desired $80,000.
Now that’s a realistic plan for many families. The challenge comes in when your child decides to go to a more-expensive, out-of-state school. Also, most of us don’t start saving the day our child is born. These factors definitely make it harder, but not impossible. For example, suppose you don’t start saving until your child is ten-years old? In this case you need to save $450 per month for the remaining 12 years (graduation at age 22 minus the current age of 10) to end up with the desired $80,000.
You’ve probably heard that there are a variety of savings programs for college. These include 529 plans, Coverdell Education Savings Accounts, qualifying U.S. Savings bonds, Roth IRAs, Traditional IRAs, UGMA/UTMAs and mutual funds. Many Coloradoans choose the 529 plan since your contributions are deductible from your state income taxes. (There are no federal or state taxes on the growth of your 529 plan if the funds are used as intended.) Colorado offers several versions of their CollegeInvest 529 plans, so that decision must be made too (we like the low-cost Direct Portfolio option using Vanguard funds).
There are a number of consequential other factors too such as penalties for not using these funds for college. Additionally, there are some special considerations for grandparents. Fortunately you don’t have to figure this out on your own. Guidepost Financial Planning is able to help you with this and all other aspects of your financial planning. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.