Dec 1, 201511:29 AMOpen Mic
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Beyond the basics: Strategies for college savings
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Saving for college is a major priority for many families. Despite escalating costs of a four-year degree causing some to question the cost relative to the payoff, most of our clients view a four-year degree as the minimum expectation for their children. While many can afford the college of their child’s choice, most still want to be smart about how they save and pay for college.
One thing is certain: it makes sense to save early and often. Average annual costs for tuition, fees, and room and board for 2014–15, according to collegeboard.org, were: $42,400 for private four-year schools, $19,000 for public in-state students, and $32,800 for public out-of-state students. Many elite or Ivy League colleges cost more than $60,000 per year.
Most families set aside funds to pay for college either through 529 savings plans (tax-advantaged plans that can be used to pay for qualified higher education expenses) or custodial accounts (savings or investment accounts registered in the child’s name with a parent or other adult as custodian).
Some parents may cover 100% of college expenses. Others may ask their student to contribute through part-time employment. Some grandparents or other relatives are also able or willing to help.
It’s important for parents to answer key questions to help determine their goal. Are you absolutely sure your child will attend a four-year college or university, or is a two-year or technical college a possibility? Perhaps your child is headed for an advanced degree such as in medicine or law, which also could affect your decisions.
For many affluent families, gifting directly to the student can provide flexibility and financial advantages to parents and other contributors and/or the students, depending on individual circumstances. Unlike 529 college savings plans, there is no financial penalty in withdrawing the funds if the student later chooses not to attend college, or does not need all of the money that was put aside.