Every parent wants success for their child. There can be no better payment for the years of sleeplessness and Dora the Explorer you’ve endured than a college graduate with multiple job offers and signing bonuses thrown at their feet. But before you arrive at that dream, you need to first figure out how to pay for it–higher education that is. While it may feel like a Herculean effort at times, there are methods that successful savers consistently use to reach those savings goals.
- “Set it and forget it” savings contributions are key. Many savings plans offer automatic contributions by linking to a bank account. It is important to begin contributing as soon as you can with as much as you can. You can always increase your contributions as you income grows.
- Set a goal. Determining how much you will contribute to higher education costs not only helps you feel like you are making progress toward a goal, it will also help set expectations about who is paying for what. Don’t be shocked when you see the final price. Relatively few students pay the sticker price. Financial aid will play a part in lowering that bill.
- Don’t forget life insurance. If your family needs the protection provided by life insurance, consider a permanent life insurance policy that accumulates cash value. Permanent life insurance can help meet a couple of college planing goals. First, it can help ensure that college can be paid for if you meet an untimely demise. Second, it is another way to save for college. The cash value in a life insurance policy is not included as an asset on the FAFSA application and the loans you can take from that cash value do not show up on your credit report.
- Be a rule follower. This is one of the times that being a stickler for the rules is good. Knowing the rules for spending 529 Plan1 funds or taking loans or withdrawals2 from the cash value in a life insurance policy is critical. You may end up incurring penalties or lapsing your policy if you aren’t on the straight and narrow.
- Track your progress. Successful savers track their progress toward their goals. First, it makes you feel good that you are achieving a goal. Second it allows you to make changes to your strategy if you are not accumulating as much as you thought.
- Ask for help. Financing higher education is one of the biggest purchases a family undertakes, so it makes sense to seek out expert advice on what savings strategies work best. Work with financial aid experts and a financial planner.
It’s easy to procrastinate saving for college when you feel like you’ll never sleep more than three hours at a time and you spend more on diapers than craft beer. The hardest part can be getting started, so take a minute and reach out to a financial planner. They can help you get a plan set up, because you have a lot on your plate as a parent; growing small people is hard work.
1 529 College Savings Plans allow earnings to accumulate tax-free until withdrawn subject to certain restrictions. By investing in a plan outside your state of residence, you may lose available state tax benefits. 529 plans are subject to enrollment, maintenance, administration/management fees and expenses. Make sure you understand your state tax laws to get the most from your plan.
Withdrawals from a 529 plan for qualified higher-education expenses are also tax-free. If you make a withdrawal for any other reason, the earnings portion of the withdrawal will be subject to both state and federal income tax, and possibly a 10% federal tax penalty. 529 College Savings Plans are securities, which can be offered solely by representatives registered to offer such products through a broker/dealer.
Call your broker or the firm offering the 529 plan to obtain a Program Description which provides more information and which should be read carefully. You should consider the investment objectives, risks, charges and expenses associated with the Plan before investing.
2 The ability of a life insurance contract to accumulate sufficient cash value to help meet education expense goals will be dependent upon the amount of extra premium paid into the policy, and the performance of the policy, and is not guaranteed. Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. If remaining policy values and scheduled premiums are insufficient, additional out-of-pocket payments may be needed to keep the policy inforce. Surrender charges may reduce the policy’s cash value in early years.
Financial planning can be offered solely by registered investment advisers and their representatives.
Equity Services, Inc., Member FINRA/SIPC, is a Broker/Dealer and Registered Investment Adviser affiliate of National Life Insurance Company. One National Life Drive, Montpelier, VT 05604. (800) 344-7437.
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