Day in and day out, more and more people are starting to realize that college just “isn’t for them.” That could be the case for your future children, working hard and starting from the bottom up. Then again, your child may have thoughts of a Law Degree, Recreational Therapy Certification, or Design School. Well, unless they work hard on their grades and do 12 different extracurriculars to earn those grants and scholarships, you know college isn’t a cheap ride!
So what does a parent do? Where do they turn?
Saving starting when the little one is reeeeealy little is a great start, but let’s make sure you don’t make any mistakes when putting that money to the side. Jeanne Sagar at The Stir gives us the 411 (down-low) on what to watch out for when saving every cent and dime for Christopher or Susie:
1. Waiting too long. Let’s face it, college does not sneak up on you. You have 18 years (give or take) to set aside money for that little one, so why delay? Parents should start investigating savings options as soon as they possibly can — even during pregnancy. According to a recent study, families who begin saving for college through a 529 savings account when their child is young will pay half as much as those who end up borrowing.
2. Not maximizing your savings. I can’t tell you whether it’s better to use a 529 plan or a custodial account for your child’s college. I can tell you that putting loose change in a jar is only going to get you so far. It’s not fun to sit down and study savings options, but the interest you can earn is worth the hassle.
3. Saving in your child’s name. Putting money in your child’s name might sound like a great way to protect yourself from a tax hit, and hey, the money is FOR your child, right? Actually, college financial aid is based on a child’s assets too. A 529 plan, on the other hand, is treated as a parent asset and only 5.64 percent of the account value is applied toward a family’s expected contribution to tuition in a financial aid package. A child’s assets, on the other hand, are assessed at 20 percent!
4. Closing the 529 when a kid goes to college. Maybe this is common sense to some folks, but a financial advisor recently told me a lot of parents make the mistake of stopping their 529 contributions when their kids start their freshman year. Turns out you should keep them going — because that tax-free money can be used in semesters to come!