The years go by so fast. It was just 5 years ago that our oldest daughter and son-in-law surprised us with a gift wrapped ultrasound picture of our granddaughter as their way of telling us we were going to be grandparents! Now we have three exceptionally gifted, brilliant and delightful grandchildren who are the world for Papa Pete and me.
The years go by so quickly and the children grow so fast. So do the costs of college tuition. As parents and grandparents we’re here to teach our children to walk, talk, ride a two-wheeler, play soccer and yes, even drive a car (yikes!). We also have a responsibility to teach financial literacy and encourage the pursuit of higher education.
College tuition has increased more than 200 percent during the last 15 years-and the variety of alternatives available, choosing the right college savings plan can be overwhelming. If you have a child or grandchild heading toward college in the next 17 or 18 years, you may be able to avoid sticker shock by planning far ahead. A variety of college savings plans offered in most states present a tax-advantaged way to invest for higher education. Advice for saving for college is the same as saving for retirement – even if you didn’t start early; it’s never too late to begin.
Keep in mind that the raw figures can be misleading. Only 5 percent of students attend colleges whose fees top $33,000 a year, and the College Board says 62 percent of full-time undergrads receive federal, state or institutional grants, while more than $134 billion in student aid is available through institutional and private loans.
Choices, control and options
Sending a family of two or three children through college may not be easy, but it is usually manageable, especially when you plan ahead. One plan that’s becoming increasingly popular due to the control, flexibility and potential for returns it offers is the 529 college savings plan. With it, your investment can be tailored to your child/grandchild or another recipient of your choice, not restricted by a state- or government-imposed plan. And because you can choose an investment allocation appropriate for the student’s age, 529 savings plans offer the potential to outpace tuition inflation over time.
What’s more, you’re in charge. You reserve the right to name a new beneficiary if the original beneficiary receives a scholarship or pursues interests outside academia, and you determine how much to contribute – as little as $25 each month or up to $300,000 or more per account. Withdrawals are tax free when used for qualified expenses. The student has the freedom to attend an out-of-state college, public, private or even some abroad, and many vocational schools also qualify for tax-free treatment. Plans offered outside your resident state may not provide the same tax benefits as those offered in your state.
It’s easy to put off thinking about these expenses, hoping that your child will receive scholarships or financial aid. But don’t count on them. While these awards do help with college funding, they are not guaranteed, not always comprehensive and not available to everyone.
Also, talk to your child about specific goals. What schools is he or she interested in? Is college an option or does your child have his or her sights set on a vocational school? Some plans limit the beneficiary’s choices, so it is important to understand your child’s expectations.
Consider these questions before selecting a plan; what are the tax benefits? Who controls the funds? How much risk is involved? Are there contribution limits that may hinder your ability to meet savings goals? Are large contributions subject to gift taxes? What investment options are available?
It’s also important to raise money savvy children. Teaching the basics of what money is all about to our children (saving, spending, donating and investing) helps them learn good money habits. Setting goals, even for the younger children, is a great way to remind them that they have choices. Just like us, they can pay themselves first from their allowance.
Children observe what we do and need good role models. Managing money is a learned behavior and we can be great teachers! What are your childhood “money memories” and how has this influenced your life?
Just like with your retirement savings plan, the best time to start saving for education needs is now; it’s never too late to begin.
This article provided by Darcie Guerin, Financial Advisor & Branch Manager of Raymond James & Associates, Inc. 606 Bald Eagle Dr. Suite 401, Marco Island, and FL 34145. Gulfshore Life Magazine named Darcie as one of the Best Personal Wealth Managers in The Southwest Florida Area for 2009 and 2010. She may be reached at (239)389-1041, email Darcie.Guerin@RaymondJames.com or visit website RaymondJames.com/Darcie.