MoneyWise August

Saving for college

Saving for College

A higher education is more expensive today than it has ever been so it’s even more important that we, as parents, make smart decisions about our kids’ college funding while not sacrificing our own future retirement. But how? Here are a few words from the experts.

Should I save for my retirement or my children’s college?

Most advisers tell parents to prioritize retirement savings because you and your child can borrow for college, while nobody lends for retirement. But taken to the extreme, that would mean most parents would only put money in their retirement accounts and save nothing for college. And that would be a mistake.

Take consideration for your unique situation. Families with several children need to save more for college than those with few. Parents with little retirement savings and a limited number of working years left need to squirrel away more for their golden years than those who plan to work for another 30 years. And a child who is 100% certain on becoming a doctor might need less financial help from a parent since he or she would be likely to be able to pay off massive student loans with that career.

When should I start to save for my child’s college?

Many people put off planning for their children's educations until the kids are well into their teens. Often, they discover they've waited too long. With a late start, they have little time to accumulate the assets they need, and miss the chance to plan opportunities to maximize available financial aid. Ideally, the best time to begin planning for your children's education is the day you learn you're going to be a parent.

What options do I have for saving for their college?

There are lots of plans to choose from. Most states have 529 savings plans that provide tax benefits. If you don’t need to access your child’s college fund until after you are age 59-1/2, you can consider an IRA. IRAs might be more beneficial if you’re looking for higher interest rates than the average savings account or 529. If you’d rather use a standard savings account, you can set up an account in his or her name, but here’s the thing: If you still need to apply for financial aid, having too much money in your child’s name could hurt his or her eligibility.

What happens if my child wants to attend college out of state?

Whether your child’s college fund is in the form of a 529 savings plan, an IRA, or a standard savings account, the funds can be used at any eligible educational institution in the country to pay for qualified higher education expenses.