The idea of your kid going off to college seems so far away, but it’s exhilarating nonetheless. You daydream about celebrating with them when they get that coveted acceptance letter. Those daydreams are quickly replaced by day-terrors of anxiety-and-debt-inducing tuition bills. You start to panic and ask yourself, “Am I saving enough for my kids’ college expenses?”
Well, I’m here to help assuage those fears and let me start by saying; you’ve still got time to prepare. If you prepare well there is no reason that the burden of a university education’s tuition should make it an untenable goal.
Let’s take a look at the costs of higher education and how you can best save for them.
The cost of Higher Education
Current figures on the tuition of universities can range anywhere from $8,909 for a two-year, community college to about $32,617 for a private university. Sadly those numbers are only projected to keep increasing. Experts estimate that in another 18 years the annual cost of a public college education could run as high as $41,228 and private university attendees should expect to pay as much as $130,428 a year.
If those numbers have you checking for your pulse, have no fear. With some sound savings strategies you can stash away a reasonable amount well before those tuition come due.
Here are two strategies:
Enroll in A 529 plan
Choosing a 529 plan for your child’s college education is one of the smartest things you can do. Not only can you put away a significant amount of savings this way, but depending on which 529 plan you choose, you won’t be taxed for it in the meantime.
With a College Savings Plan, you can accumulate tax-free assets that can be used at any accredited college or vocational school in the U.S., and a few international schools as well. Several states also offer tax credits or deductions with College Savings Plans. This plan covers all qualified higher education expenses including room and board, books and other mandatory fees. On the downside, there are contribution limits.
A Prepaid Tuition Plan allows you to purchase in-state tuition credits at current rates; inherently this plan only covers tuition and mandatory fees. You’ll protect your child from future price increases, but he or she will be limited to schools within their home state. In the event of a move, most states will allow you to transfer the accrued amount on this plan to another state for average equal value.
Consult an investment advisor if you are unsure which plan is best for your needs.
Set up a Roth IRA
If you know that you are going to be older than 59 ½ when your children attend college than a Roth IRA is a solid savings strategy. It allows you to save up to $5500 each year, and after the above-mentioned age you can withdraw it for any purpose without penalty. In the event that your child’s scholarships or financial aid covers a significant portion of their tuition, you can use the money penalty-free for other expenses. This does not however exempt you from taxes. This option also provides a kind of loophole, for parents who are afraid their child will be unable to qualify for finical aid options if they have a dedicated college savings plan. Just be aware of the disadvantage. You may find yourself at a disadvantage when it comes to retirement savings if you use a Roth IRA for college savings.
How are you measuring up?
When it comes to measuring up the natural tendency is to compare yourself to other parents. This is a poor standard. It’s better for you to set a reasonable goal based on your current income situation. Even $50 a month can add up over time. Even if a small amount is all you are able to do for 18 years, you could have more than $10,000 in the bank for your child’s education.
In the end saving for a child’s university education is a marathon not a sprint. Even if you’re starting late in the game, or if you haven’t always been able to do as much as you would like, your efforts will be appreciated at tuition time. If you need a little bit of extra time to catch up you may want to consider sending your child to community college for the first two years.
Written by Bisi Ibrahim