CWA Blog Article - Saving for College

In the landscape of financial planning, preparing for your child's college education stands is one of the most significant investments families face. As the cost of higher education continues to rise, starting your savings plan early can make a substantial difference in managing future college expenses. Here, we outline some common strategies to help you build a robust college fund.

Understand the Costs

Before setting up a savings plan, it’s crucial to have a clear understanding of what you’re saving for. Tuition is the primary expense, but room and board, books, supplies, and personal expenses also add up. Consider the type of institution your child might attend—public or private, in-state or out-of-state—as this will significantly influence the costs. Tools like the College Board’s Cost Calculator can provide a tailored estimate of future college expenses.

Start Early and Save Regularly

The earlier you start saving, the more you can leverage the power of compound interest. Even small amounts saved regularly can grow over time. Establish a monthly saving goal and treat it like any other essential expense. This disciplined approach ensures that you consistently contribute to the college fund, gradually building a substantial reserve.

Choose the Right Saving Vehicle

Several savings accounts are designed specifically for college savings, each with unique benefits and limitations:

• 529 Plans: These tax-advantaged savings plans are a popular choice. They offer high contribution limits and tax-free withdrawals when funds are used for qualified education expenses. Some states also provide tax deductions or credits for contributions.
• Coverdell Education Savings Accounts (ESAs): These accounts allow a maximum contribution of $2,000 per child per year, with tax-free earnings if used for education costs.
• Custodial Accounts (UGMA/UTMA): These accounts provide a way to save in the child’s name, with the first $1,100 of unearned income tax-free. However, the child gains control of the account at adulthood, which could impact financial aid eligibility.

Apply for Scholarships and Grants

While saving is crucial, reducing the need to use those savings is equally important. Encourage your child to apply for scholarships and grants, which can significantly decrease the out-of-pocket expenses for college. Numerous resources are available to find scholarships, from local community organizations to large national databases.

Consider Financial Aid

Most families will need some form of financial aid. Fill out the Free Application for Federal Student Aid (FAFSA) to understand what federal aid might be available, including loans, grants, and work-study programs. Be mindful that the financial assets saved in the child’s name could impact their aid eligibility more than those saved in a parent’s name.

Regularly Review and Adjust Your Plan

Your financial situation and college costs will evolve, so it’s important to review your saving strategy annually. This review allows you to adjust your contributions, explore different investment options, and stay on track towards your goal.

Community Wealth Advisors is Here For You!

Saving for college is a marathon, not a sprint. By understanding the costs, starting early, selecting the right saving vehicle, applying for scholarships and financial aid, and regularly reviewing your plan, you can effectively manage the financial challenges of higher education. Engaging with a financial advisor at CWA can also provide tailored advice and strategies, helping to optimize your plan for your family's needs and goals.

Every investor's situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. You should discuss any tax or legal matters with the appropriate professional.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Allison Wilson and not necessarily those of Raymond James.