Just as time flies, saving for college can also fly – under the radar, that is…
My mother is a far-seeing person. On the day my son was born, Oma began saving to help him go to college.
There weren’t many financial options for her on the little island of Curacao, where I was raised and where she still lives to this day, but that didn’t discourage her. She attacked saving for college the old fashioned way. She began putting away “gilders” (the local currency) in a simple savings account, and it slowly added up. In 2014, I was able to take those gilders and reposition them in a more advantageous 529 College Savings Plan here in the United States.
Not everyone has a parent or relative who was or is in a position to do this, or thought to. Maybe you’ve always had the intention yourself to put away money for your child, but with one thing and another you still haven’t got started.
You’re not alone – not by a long shot. Many American parents are in the same position with regards to saving for college. According to a Fidelity College Savings Indicator Survey, parents of 10th graders and beyond say they have the following regrets; they wish they had :
• Saved more each month
• Opened a 529 saving plan earlier
• Treated contributions to a college fund like a monthly bill
• Boosted savings by 1% every year
• Prioritized college savings over impulse buys
• Opened a cash-back credit card with rewards tied to a dedicated savings account
But you know what? Regret is a waste of time and energy. You can’t turn back the clock – you just need to get started TODAY.
And it’s important. It used to be that a college degree gave a young person an edge in life. These days, with a much higher percentage of the population attending college, that’s not quite as true. A college degree is the standard now. The kids who will have an edge in the future are the ones who graduate with lower debt. Saving for college becomes that much more important. As of January this year, Americans owe more than $1.2 trillion in college loans, and it is becoming a noose around the necks of the next generation.
So, you feel a bit behind in the game? Here are some ideas for making up some of that lost time. I encourage you to implement as many as possible in a full-court press.
Saving for College: Tips & Tricks for Late Starters
Open a 529 Savings Plan. Although they’ve proven to perform best over a period of a decade or more, it still may be worth it. If you only have a few years left to contribute to it, you’ll naturally have a lower risk tolerance and should gear the plan with more conservative investments.
Consistently contribute as much as you can. Whatever fund you decide to set up, the key is that word “consistency”. Contributions made from every paycheck soon begin to add up. If you’re starting late, you’ll want to be as aggressive with this as you reasonably can afford.
Dedicate an additional income. If you’re concerned that the amount you can save is just not going to add up quickly enough, you might look for a temporary income that you can set aside entirely for the college fund. If only one spouse is working, maybe the other could take on some part time work? Is moonlighting an option? Maybe even something the family can do together from home or on weekends? And of course…
Definitely get your kids contributing. If they are going to be the main beneficiaries of this college fund, then they should certainly have a part in building it. This might include a part time job while they’re still in high school, and during their summers off. Saving for college should become their priority, when working. Did you know that a national study conducted in 2012 by the University of California found a correlation between college student’s grades and how much they were contributing to the cost of their education? The more they paid personally, the better their grades. And once they’re contributing…
Set up a Roth IRA for them. This would be funded by the student themselves. They can do so as long as they are working in the years that they make the contributions. The interest earned will remain in the account for retirement, but the contributions themselves may be withdrawn free of tax and penalties for college. The maximum contribution is $5500 per annum.
Look for little streams of extra money. For example, you’re going to be paying household bills anyway, so pay them all with a cash back credit card. Make sure you pay off the balance every month so that you don’t incur interest, and have the cash rewards linked to your college savings account. By itself, this isn’t going to generate a fortune, but every dollar counts! What other little streams like this can you find?
Consider an in-state school instead. Most high school seniors can tell you a preference for what college they’d LIKE to attend, and in some cases there’s a good reason for their choice. Very often, however, this preference is largely influenced by peers and marketing. College costs have spiraled, however, with private institutions charging up to $45,000 per year (and we’re not even talking about the Ivy League; Harvard will cost you more than $60,000 per year). The real difference in education and career placement between the more expensive out-of-state college and the closer one may not be worth the large difference in cost. And while we’re thinking along those lines…
Take advantage of a community college for core subjects. This is becoming very popular. The first year of college is mostly just those common subjects that everyone has to take, regardless of the eventual major. Many students now choose a year (or even two) at a local community college, and then transfer to graduate from a more expensive school. This can save a lot of money.
Make the most of higher education tax breaks. A couple of examples: The Hope Credit is available to taxpayers who have incurred expenses related to the first two years of postsecondary education. The Lifetime Learning Credit is available based on the first $10,000 in postsecondary education expenses paid by the taxpayer during the tax year. Refer to IRS publication 970 to see if you qualify for these or other tax benefits related to education.
Do you need help setting up your plan, and making it work with your other financial goals? Give my office a call today, and let’s discuss your needs. The sooner we get started, the better.