How to Save [Enough] for Your Child’s Tuition
Between 1986 and 2016, college tuition prices rose by more than $13,000 on average. And, in 2018, the typical college graduate had accumulated $29,800 in student loans.
These statistics may not surprise you. It seems like every student you know is saddled with massive amounts of student loan debt. It has quickly become the norm.
Though some graduates pay the debt quickly, others aren’t so lucky and spend years or even decades paying them back.
Your children can be prepared for the ever-growing tuition prices—if you plan your savings well. But, the issue is, we never expected tuition to grow as much as it has. So, how will you know how much to save?
It can be overwhelming to plan for a future we can’t predict, but your financial advisors are here to help.
Take Advantage of 529 Plans
529 plans are a fantastic way to save for your child’s college expenses. You can contribute large amounts of money to this account, where it will grow tax-deferred.
Here are a few benefits of the 529 plan:
- Contributions grow tax-deferred.
- There is no withdrawal penalty when it comes time for college, as long as withdrawals are used for qualified expenses.
- More than 30 states offer tax deductions or credits for contributions.
- Your child cannot withdraw the money early or for an unrelated purpose because the account remains in your control.
- You can withdraw funds at any time [with a 10% tax penalty on earnings].
- You can set up automatic payments to the account, allowing for hands-off management.
Plan Savings Based on Your Goals
We are not suggesting that you must pay for your child’s college education in full. Your savings plan is primarily based on your personal goals and how much you would like to contribute.
For example, the average public college in 2019 costs $9,716 per year for in-state tuition. The average private college in 2019 costs $35,676 per year. When you consider that over the past ten years tuition has grown between 2.3% and 3.1% annually, you can project a range for what your child’s education might cost when the time comes.
Once you calculate roughly how much each year’s tuition will cost, you have decisions to make.
Ask yourself these questions:
- Do I want to pay for my child’s education in full?
- Is my goal to save for a public or private college?
- How many years do we have before he or she will enroll?
Your answers to these questions will drive your savings plan. When your goals are in order, decide on an appropriate amount to save per month and per year.
Add a Monthly Contribution to Your Budget
Once you decide on a comfortable amount to contribute to your child’s education, break it down into monthly payments, and add it to your budget. As we mentioned, many accounts allow you to set up your monthly contribution to transfer automatically. This requires little maintenance, and in no time, you’ll be right on track to reach your target savings.
Contact Your Financial Advisor
Saving for your child’s college education is an excellent long-term goal. But, you have several irons in the fire when it comes to your finances. It’s critical to have a holistic financial approach that meets your needs in every area.
Your financial advisor can help you calculate where to allocate each part of your budget. He or she will take into account your financial standing and goals as a whole and provide you with the counseling necessary to meet them.
Contact Southwestern Investment Group today to set up a savings plan for your child’s future.
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