College Funding Options for Investors Starting Late


THE SCHOOL YEAR HAS started across the country, which means millions of parents in recent weeks have turned their attention to how they will pay for college. As costs continue to escalate, however, many are worried they’ll never be able to save enough.

Last year, the average cost of tuition, room and board at a four-year public institution was more than $36,000, a more than $1,000 increase from 2016-2017. For private schools, the bill is much more expensive, with the price tag nearing $47,000. Add that up over the course of four years – or more – and it’s no wonder that parents are on edge.

Without question, the soundest advice when it comes to investing savings for higher education is to start early, but there are countless Americans that, for whatever reason, haven’t been able to do that. If that’s you, not all hope is lost because there are ways to catch up or compensate.

Consider the following:

529 plans. The most popular college-funding vehicle is the 529 plan, which are typically structured like a retirement savings plan, except the money can be used much sooner and is specifically intended to pay for qualified education expenses. Pre-paid plans allow you to lock in tuition credits at current rates at participating schools.

Earnings grow tax-free and withdrawals are not subject to federal income taxes, while most states allow you to deduct plan contributions. Unlike 401(k)s and individual retirement accounts, contributions to 529 plans are not tax deductible at the federal level.

While many people believe it’s too late to invest in a 529 plan once a student is in high school, such plans are an ideal vehicle for families that are behind.

For one, it’s never too late to start saving. Two, there are no contribution limits, allowing families entering their peak earning years just as their children become teenagers – which is very common – a way to make large lump-sum contributions that can generate returns. Three, you can continue to make the contributions until the student graduates, meaning the benefits will endure longer than most realize.

Pick the best fit. When young people begin to think of which college is the best fit for them, they often consider a variety of factors, including where their friends are going, which school is farthest from home or even which one has the best football team. However, from a planning perspective, determining “fit” means something else, often requiring a thoughtful discussion between parents and children.

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