Saving for College 101Submitted by Castlebar Asset Management on August 20th, 2013
Over the past two weeks, my Facebook news feed has been filled with photos of friend’s children eagerly headed off to their first day of school. After paying for all of the back to school items the last thing on many parent’s mind is figuring out how to pay for college.
Figuring out how to pay for college can be daunting. Tuition rates have increased at a faster pace than everything else over the past decade. Over the next week, I will have several blog posts about saving for college. This first post will be brief but to the point. Here are four suggestions on saving for college:
- Start Early: It is never too late or too early to start saving for your children’s college fund. I recommend that clients get in the habit of saving for college early so that the money can compound over time.
- Don’t try to pay for all of college: For some people it is within their financial means to save and pay for all of their children’s college education. Most people don’t fit into this category. I recommend that clients take a three part strategy towards saving for college. They should break the cost of college into thirds. The first part is to save before your children head off to college. By starting early and having some help from the markets you can accumulate a solid base to use for tuition as well as room and board. The next step is to plan on paying for about 1/3 of college while your children are in college. This can be a combination of scholarships, grants, a part time job for your child and or contributions from the family. The final part is student loans that your child or you can repay after they are finished with school. The goal should be to minimize student loans.
- Choose the right plan: The most common plan people use to save for college is a 529 plan. There are other account types available but they usually have more limitations. For vast majority of the population a 529 plan is a plan of choice.
- Monitor your investment allocation: Just like your 401(k) plan you need to monitor these investments. Earlier on while saving for college you should be more aggressive with a college savings plan. As college draws closer, the investment allocation should become more conservative just like a retirement account.
The rest of this week I will discuss different account types you can use to start saving for college.
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.