Tuitions for college have been increasing at an annual rate of around 8% for more than five decades. There is nothing in the future that tells us that this historical trend is not here to stay. Unfortunately, the annual increase in the amount of tuition colleges require is more than the family increase in income. This does not bode well for college students of the future.
Take the 18 years that pass between the birth of a child and his college registration and you can expect tuition to double for the first nine years and redouble for the second nine resulting in a whopping 400% increase overall. Currently, incomes are flat and will most probably increase less than 75% over the same 18 year period.
With this data, it is mandatory for parents of college bound children to save early and save much. Savings, scholarships, and financial aid will undoubtedly all be required factors for middle-class families to ensure their children get the education they need and desire. Planning for your children's college should start before you plan to have them.
The most common and best financial program for saving for your children's' college fund is the 529 College Plan. The plan was established by Congress in 1996 and has gone through several improvements in the following years. It is state operated, so each state has designed and administers its own plan specifics, and people are welcome to invest in the plan of any state.
The annual contributions invested in the plan are in post-tax dollars, but the funds grow tax free and are not taxed when withdrawn by the student for educational endeavors, giving it an overall favorable tax position. Also to be considered are that many of these state plans will allow more than $300,000.00 to be invested per beneficiary, enough to get a student through most of the top colleges and even some grad school.
Unlike Educational Savings Accounts, 529 Plans are owned by the parent, not the student, so you can always control the funds. The funds can be moved from one state's plan to another each year, and they can even be rolled over to a different family member if they are not used by the original beneficiary. Also, there is no age limit, so you can even start a 529 Plan for yourself. Just like our retirement savings plans, the funds are typically put into less volatile equities as the potential student gets closer to college age. There are some drawbacks. Funds not used for educational purposes are taxable upon withdrawal, and there is a 10 percent penalty as well.
There are other good methods to consider for college savings too. It's always a good idea to get kids engaged in saving for their own future with a regular savings account where they can save a portion of their birthday checks from grandma, allowance money, and income from summer jobs. Mutual funds and bonds are a good way to save a portion of the funds for college, as they aren't subject to penalties if you want to get your hands on a small amount of cash without going through the government hoops and paying the consequences. And UTMAs or UGMAs (Uniform Transfers/Gifts to Minors ACT) are still good alternatives as well, as funds can be gifted to minors without tax, within certain limits, and some earnings are tax free or at the child's tax rate.
Even with all the savings plans available and a solid plan in place early, there may still not be enough to put your child through college at today's growing rates. There are lots of employers who offer college scholarships for their employee's children. This is well worth looking into. Make sure your kids realize the importance of good grades to not only get them into the college of their choice and give them a chance at a more successful life, but also to earn scholarships and financial aid from the college itself, or organizations outside of the college that offer such things. Extra curricular activities in sports, speech, language or other offerings always look good on a college application and set the student apart for scholarships and financial aid purposes. There are also Pell grants, student loans with a government guarantee and work-study programs to gain further funding for the student. Planning for college requires the cooperation of both students and parents along with planning early, being disciplined and exerting effort.
Take the 18 years that pass between the birth of a child and his college registration and you can expect tuition to double for the first nine years and redouble for the second nine resulting in a whopping 400% increase overall. Currently, incomes are flat and will most probably increase less than 75% over the same 18 year period.
With this data, it is mandatory for parents of college bound children to save early and save much. Savings, scholarships, and financial aid will undoubtedly all be required factors for middle-class families to ensure their children get the education they need and desire. Planning for your children's college should start before you plan to have them.
The most common and best financial program for saving for your children's' college fund is the 529 College Plan. The plan was established by Congress in 1996 and has gone through several improvements in the following years. It is state operated, so each state has designed and administers its own plan specifics, and people are welcome to invest in the plan of any state.
The annual contributions invested in the plan are in post-tax dollars, but the funds grow tax free and are not taxed when withdrawn by the student for educational endeavors, giving it an overall favorable tax position. Also to be considered are that many of these state plans will allow more than $300,000.00 to be invested per beneficiary, enough to get a student through most of the top colleges and even some grad school.
Unlike Educational Savings Accounts, 529 Plans are owned by the parent, not the student, so you can always control the funds. The funds can be moved from one state's plan to another each year, and they can even be rolled over to a different family member if they are not used by the original beneficiary. Also, there is no age limit, so you can even start a 529 Plan for yourself. Just like our retirement savings plans, the funds are typically put into less volatile equities as the potential student gets closer to college age. There are some drawbacks. Funds not used for educational purposes are taxable upon withdrawal, and there is a 10 percent penalty as well.
There are other good methods to consider for college savings too. It's always a good idea to get kids engaged in saving for their own future with a regular savings account where they can save a portion of their birthday checks from grandma, allowance money, and income from summer jobs. Mutual funds and bonds are a good way to save a portion of the funds for college, as they aren't subject to penalties if you want to get your hands on a small amount of cash without going through the government hoops and paying the consequences. And UTMAs or UGMAs (Uniform Transfers/Gifts to Minors ACT) are still good alternatives as well, as funds can be gifted to minors without tax, within certain limits, and some earnings are tax free or at the child's tax rate.
Even with all the savings plans available and a solid plan in place early, there may still not be enough to put your child through college at today's growing rates. There are lots of employers who offer college scholarships for their employee's children. This is well worth looking into. Make sure your kids realize the importance of good grades to not only get them into the college of their choice and give them a chance at a more successful life, but also to earn scholarships and financial aid from the college itself, or organizations outside of the college that offer such things. Extra curricular activities in sports, speech, language or other offerings always look good on a college application and set the student apart for scholarships and financial aid purposes. There are also Pell grants, student loans with a government guarantee and work-study programs to gain further funding for the student. Planning for college requires the cooperation of both students and parents along with planning early, being disciplined and exerting effort.
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