SWFG: Time for Graduation! Don’t be Surprised by College Expenses. (ADV)
It’s graduation season! Many college graduations are currently taking place, and high school graduations are right around the corner as well. As a teacher, my wife is a little saddened each year to see this year’s seniors walk across the stage and moving onto the next chapter of their lives. For many students, their next step is a college education. Whether it be out of state or in state, the price of a college education could be at the forefront of any parents’ mind. With a 2-year-old and a 7 month old of our own, it is never too early to begin thinking about how we will fund their college education.
For the 2022-2023 school year, the average cost of one year at a four-year in-state public college is $27,940, while the cost for one year at a four-year in-state private college is $57,570. While this number includes tuition, fees, room and board, books, transportation and personal expenses, it is a large amount of money, and it is still increasing each year. No one can predict what college may cost in 5, 10 or 15 years, but historical trends indicate expenses could increase 3% to 5% each year. Here’s an idea of what college expenses may look like if we increase by 5% each year:
How can you plan for an expense that second to buying a home, might be the biggest purchase you make?
Focus on your Savings
The more you save now, the better off you’ll likely be later. Starting earlier allows for the amount to compound and grow over a longer time frame. Albert Einstein said, “compound interest is the 8th wonder of the world.” Start with whatever you can afford now, and add to it over the years with raises, tax refunds, and any other unexpected amounts received.
College Savings Options
- 529 Plans
- Contributions are tax deferred
- Withdrawals are tax free at the federal level if the money is used for qualified education expenses.
- A 529 Savings Plan is similar to a 401k plan where you direct your contributions to one or more of the plan’s investment portfolios.
- A tuition plan purchases college tuition credits at today’s prices for use in the future.
- Custodial Account (UTMA)
- Account is in your child’s own name, with an adult being a custodian.
- All contributions to the account are irrevocable gifts to you child.
- When your child turns 21 (Georgia state law) your child will gain full control of the account and can use the money for whatever purpose they chose.
- Earnings and capital gains generated by the account are taxed to your child each year under the “kiddie tax” rules. Under kiddie tax rules, a child’s unearned income over a certain threshold ($2,200 in 2021) is taxed at parent income tax rates.
Georgia Specific:
HOPE/Zell Miller Scholarships
- HOPE
- An estimated 85% of tuition expenses paid for if attending a Georgia university, technical college or private college.
- One of the eligibility requirements include graduating from a HOPE-eligible high school with a minimum 3.0 grade point average.
- Zell Miller
- 100% of tuition expenses paid for if attending a Georgia university, technical college or private college.
- Eligibility is more stringent needing to meet all HOPE eligibility requirements as well as having a grade point average higher than 3.70 among other requirements.
- If eligible for the Zell Miller Scholarship, you cannot also receive the HOPE Scholarship.
Thank you for the trust and confidence you have placed in us, and giving us the opportunity to provide education to you on your financial journey.
As always, thank you for the introduction of your family and friends over the years. We are honored to serve you! As a service to our clients, we are happy to act as a sounding board for your friends and family. If any of them should need a second opinion on their financial situation, introduce them to www.striblingwhalen.com or call us at 678-989-0048.
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Regards,
Warren D. Stribling, IV, CFP®
Principal
warren.stribling@striblingwhalen.com
Brian E. Whalen, CFP®, CIMA®, AIF®
Principal
brian.whalen@striblingwhalen.com
Jacob Beauchamp, AAMS®
Financial Advisor
jacob.beauchamp@striblingwhalen.com
Investors should consider the investment objectives, risk, charges and expenses associated with 529 plans before investing; specific plan information is available in each issuer’s official statement. There is the risk that investments may not perform well enough to cover college costs as anticipated. Also, before investing, consider whether your state offers any favorable state tax benefits for 529 plan participation, and whether these benefits are contingent on joining the in-state 529 plan. Other state benefits may include financial aid, scholarship funds, and protection from creditors.
Sources:
https://www.broadridgeadvisor.com/pdfservice/ConceptPiece.a0b8ae7a-e6ea-465e-8342-e9896c9b96fb.pdf
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