Next to retirement, saving for college is the number-two savings priority for parents. (1) But despite the importance of having a college plan, many Americans feel ill-equipped to tackle their goals. On top of that, there are multiple ways to save for your child’s post-secondary education, and not all savings vehicles are created equal. And, just like retirement, it can be difficult to know if you are on track. Here’s an overview of the state of college planning in America today and some actionable steps to get your plan on track!
Have You Started Saving?
According to an Annual College Savings Indicator study, (2) most parents start saving for college when their child is around 5. But many parents also admit to being unclear on when to start. In fact, 56% think that if they start saving by the time their child enters high school, they will be okay. Depending on how much of your child’s tuition bill you’d like to cover, that may be too little, too late. When you start early, even saving $50 a month, compound interest is on your side:
Do You Have A Plan?
Unfortunately, good intentions alone just won’t cut it. Parents might plan to take care of 62 percent of college costs for their kids, but most of them are only set up to cover 28 percent by the time they send their children off into the great big world. Stats show us that those who have a plan tend to save regularly and save more. If you need some motivation to start saving, take a look at these numbers:
How To Get Started
The most popular way to save for college is a tax-advantaged 529 plan. There may be a benefit to using this college-specific savings account, as those with 529 plans report having saved more than those who don’t. A 529 plan is a state-sponsored education savings account that allows earnings to grow on a tax-deferred status.
Beyond 529 plans, some families use Roth IRAs. Your Roth contributions can be withdrawn at any time and can be used for any purpose. In addition, Roth IRAs offer virtually unlimited investment options. Lastly, IRAs will not have any impact on your financial aid eligibility.
The most important thing is to just get started. No matter how old your child is, every little bit you save adds up. Even if you don’t think you have enough room in your budget to add another line item, $25 a month is still $25 more than $0. Setting up automatic contributions is a good way to remind yourself that college is getting closer and your monthly account statement will keep this goal in the forefront of your mind. You can also make it a goal to save extra money from a raise or a bonus and invest it in your child’s future.
Need Some Help Getting Started?
By far, those who work with a professional to create a college savings plan are more successful, having almost $24,000 more saved than those who work alone. The benefits an advisor brings to the table are priceless. A financial professional specializing in college planning can help you determine your expectations, set goals and checkpoints, and help you with the details of college choice and financial aid. Maximize your college savings by working with someone who knows the ins and outs of college planning. Contact our office by calling us at (323) 254-3072, or simply click here to book your free 30-minute introductory phone consultation today!
About Mason & Associates, Inc.
Mason & Associates, Inc., was founded in 1989, specializing in Life Planning for individuals, families, and small businesses. Life Planning places a person’s core life values at the heart of the advice process and focuses on the human aspects of financial planning.
As a client, your personal story is key to our planning process. That is why we strive to build a close relationship that will encompass every aspect of your life. Together with our team of professionals, we guide you through the process of identifying what is important to you, your goals, your dreams. We then put into place a financial road map to set you on your way toward achieving your objectives.
Our responsibility does not end there. As you encounter bumps in the road, changes in goals, or any other roadblocks, we are there to offer advice and guidance. We are there to celebrate your successes and cope with your challenges. We work alongside your other professionals, such as your attorney and your CPA, to be sure all of your legal and financial needs are aligned.
*All statistics retrieved from: https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/PR/CSI-2018-Executive-Summary.pdf.