Saving for your Children’s College Education

Summer is in full swing, but it’s never a bad time to touch base on saving for your children’s college education! There are numerous tips and strategies that can help you when it comes to time to write that first tuition check, and here’s three to keep in mind: First, understand how much money you should be putting away, and how much money you want to have saved by time your child leaves for college. Second, consider if your child will qualify for financial aid and whether or not student loans are something they may need to take out. Lastly, consider how a 529 tax plan can help you pay for your child’s education!

How Much Should you be Saving?

How much money you should be setting aside can vary based upon your financial capabilities, but Fidelity suggests that parents use what’s called the “2K plan”. The 2K plan states that each year, you should multiply your child’s age by 2,000 to determine how much money you should have saved at that point in their life! This means that by the time that your child turns 18, you should have $36,000 saved, and this can be reasonably expected to pay for half of your child’s 4 year tuition costs when attending an in-state university! Reading that sentence, you may notice that that’s expected to be enough to pay for just half of your child’s 4 year tuition costs—but don’t worry, there are ways to make up that other half!

Consider Financial Aid and Student Loans

If you’ve followed the 2K plan and you have enough to pay for roughly half of your child’s 4 year tuition costs, then you’ll be looking for ways to pay for the other half of said tuition costs! This is where things like financial aid, scholarships, and student loans come into play! There are certain things that may qualify—or disqualify—your child from financial aid, and you’ll want to familiarize yourself with what those things are! In addition, you’ll want to determine if your child qualifies for any sort of scholarship and how they can go about obtaining that scholarship! There are scholarship opportunities of all different kinds, and it never hurts to apply for a scholarship! It’s also important to note that work study programs are a great way to provide your child with some money of their own and potentially knock some of the price off of their tuition bill! Lastly, if you find that there are still some additional costs to address, then your child can consider drawing student loans.

Consider Using a 529 Plan

A 529 Tax Plan is a great way to potentially increase your child’s education savings and help lower the cost of college! These plans can vary from state to state, and thus you should do some research on the advantages of the plan in your state and how if may differ from other 529’s. The reason that 529’s are so useful for your child’s education savings is that they are exempt from federal capital gains tax, and not taxed by state governments when used for qualified education expenses. Qualified expenses can vary depending upon the state that you are in, so do some research on your state government to determine how much you stand to gain!