Our Blog

Getting a Head Start on College Savings

The U.S. Department of Agriculture estimates a middle-income family with a child born in 2015 can expect to spend about...

The U.S. Department of Agriculture estimates a middle-income family with a child born in 2015 can expect to spend about $275,000 to raise a child to the age of 17.¹ That’s’ roughly equal to the median value of a new home in the U.S.²

And if you’ve already traded that super-charged convertible for a minivan, you can expect your little one’s college education to cost as much as $324,000.³

But before you throw your hands up in the air and send junior out looking for a job, you might consider a few strategies to help you prepare for the cost of higher education.

First, take advantage of time. The time value of money is the concept that the money in your pocket today is worth more than the same amount will be worth tomorrow because it has more earning potential. If you put $100 a month toward your child’s college education, after 17 years’ time, you would have saved $20,400. But that same $100 a month would be worth over $32,000 if it had generated a 5% annual rate of return.⁴  The bottom line is, the earlier you start, the more time you give your money to grow.

Second, don’t panic. Every parent knows that feeling – one minute you’re holding a little miracle in your arms, the next you’re trying to figure out how to pay for braces, piano lessons, and summer camp. You may feel like saving for college is a pipe dream. But remember, many people get some sort of help in the form of financial aid and scholarships. Although is difficult to forecast how much help you may get in aid and scholarships, they can provide a valuable supplement to what you have already saved.

Finally, weigh your options. There are a number of federal and state-sponsored tax-advantaged college savings programs available. Some offer prepaid tuition plans and others offer tax-deferred savings.⁵  Many such plans are state sponsored so the details will vary from one state to the next. A number of private colleges and universities now also offer prepaid tuition plans for their institutions. It pays to do your homework to find the vehicle that may work best for you.

As a parent, you teach your children to dream big and believe in their ability to overcome and obstacle. By investing wisely, you can help tackle the financial obstacles of high education for them – and smooth the way for them to pursue their dreams.

Back

¹ U.S. Department of Agriculture, 2015

² U.S. Census Bureau, 2015

³ The College Board, 2014. (Based on average tuition and fees for private universities in 2014-15 and assuming a 5% annual increase.)

⁴ The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for higher returns also carry a higher degree of risk. Actual results will fluctuate. Past performance does not guarantee future results.

⁵ The tax implications of education savings programs can very significantly from state to state, and some plans may provide advantages and benefits exclusively for their residents. Please consult legal or tax professionals for specific information regarding your individual situation. Withdrawals from tax-advantaged education savings programs that are not used for education are subject to ordinary income taxes and may be subject to penalties.

Copyright 2015 FMG Suite.

DISCLAIMER: This website is for informational purposes only and does not constitute a complete description of our investment advisory services or any past performance. This website is neither a solicitation nor an offer to sell securities or investment advisory services except where we are appropriately registered or exempt from such registration. Information throughout this site, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we and our suppliers believe to be reliable. However, we do not warrant or guarantee the timeliness or accuracy of this information. Nothing on this website should be interpreted to state or imply that past results are any indication of future performance. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION POSTED ON THIS OR ANY ‘LINKED’ WEBSITE.

You may also like

How Your Savings Account Can Become Your Retirement Redeemer

Many news stories and advisors lately seem to focus investment strategies as a surefire way for people to gain extra…

The Solar Cycle and Economic Cycles

According to NASA, the sun’s current cycle, known as Solar Cycle 24, is expected to reach its peak in early-…

Eating the Estate Planning Elephant… One Bite at a Time, Part I

No one wants to look at it, no one even wants to think about it, yet there it looms —…