We now live in a world where the cost of education continues to rise every year, which is why a college savings plan is so important. It is essential to start thinking about saving and investing now to achieve your educational goals. At Peters Financial, we have the tools, discipline, and foresight to guide you along the way.
The U.S. Department of Agriculture estimates the cost of raising a child to the age of 17 for a middle-income family will be about $285,000. That's approaching the median value of a new home in the U.S.
If you want to add the cost of education to that number, you can expect to be paying an additional $26,820 a year for the cost of a public four-year in-state university. But before you throw your hands up in the air and send Junior out looking for a job, you might consider a few strategies to help you prepare for the cost of higher education.
First, take advantage of time. The time value of money is the concept that the money in your pocket today is worth more than the same amount will be worth tomorrow because it has more earning potential. If you put $100 a month toward your child's college education, after 17 years' time, you would have saved $20,400. But that same $100 a month would be worth over $32,000 if it had generated a hypothetical 5-percent annual rate of return. The bottom line is: the earlier you start planning, the more time you give your money the potential to grow.
Second, don't panic. Every parent knows the feeling – one minute you're holding a little miracle in your arms, the next you're trying to figure out how to pay for braces, piano lessons, and summer camp. You may feel like saving for college is a pipe dream. But remember, many people get some sort of help in the form of financial aid and scholarships. Although it's difficult to forecast how much help your student may get in aid and scholarships, these tools can provide a valuable supplement to what you have already saved.
Finally, weigh your choices. There are a number of federally and state-sponsored, tax-advantaged college savings programs available. Some offer prepaid tuition plans, and others offer tax-deferred savings. Many such plans are state-sponsored, so the details will vary from one state to the next. A number of private colleges and universities now also offer prepaid tuition plans for their institutions. It pays to do your homework to find the vehicle that may work best for you.
As a parent, you teach your children to dream big and believe in their ability to overcome any obstacle. By investing wisely in a savings plan, you can help tackle the financial obstacles of funding their higher education – and smooth the way for them to pursue their dreams.
A 529 Plan is a tax-advantaged financial account. The money you contribute to it grows tax-deferred within the account. Withdrawals are tax-free when used for appropriate ("qualified" in IRS-speak) educational expenses: tuition, books, and supplies, and room and board.
Not only can you get a tax deduction or credit for contributions, but earnings grow on a tax-advantaged basis, and when you withdraw the money, it is tax-free if the funds are used for qualified education expenses.
College costs have risen steadily over the past several years, which is why some should consider starting to save early. Whether you plan on paying all the costs or just a fraction, this calculator can help you better assess the overall price tag of higher education.