With the arrival of back-to-school season, many Seacoast NH parents start thinking about how to plan for their childrens’ higher education costs. College expenses are a crucial aspect of a comprehensive financial strategy, and there are several different options to consider, based on overall financial goals and how early you start planning.
The 529 Plan: A Solid Starting Point
One widely recognized option for saving for educational expenses is the 529 Plan. This tax-advantaged account allows you to set aside money after taxes, and the growth on these funds is tax-free. When used for qualified educational expenses, you won’t have to pay tax on the gains. A general rule of thumb is to multiply the child’s age by $2,000. So if your child is 5 years old, you’d aim to have a minimum of $10,000 in a 529 fund, and add to that each year as your child grows.
A recent investing article specifically about college savings planning by Elizabeth Gravier, published on July 21, 2023 by cnbc.com, quoted student aid expert Mark Kantrowitz, who suggested the following current monthly savings estimates: a minimum of $300 per month for in-state, four-year, public college, and a minimum of $500 per month for an out-of-state, four-year, public college. Obviously, there are lots of variables depending on where you live, and the specific college or university you and your child are considering. According to an article on bestcolleges.com about 529 College Savings Plans, statistics showed that in July 2022 the average 529 Plan had approximately $25,900, and 33% of students surveyed reported that their tuition was funded in part by a 529 Plan. So it’s a great place to start.
Life Insurance As A Funding Tool
While the 529 Plan is a great choice, it’s not the only option. A whole life insurance policy can be a tool that provides peace of mind for you and your loved ones in the event of your death. It also serves as a financial safety net, helping to replace lost income, cover debts, and fund future expenses–like education costs–on a tax-advantaged basis.
Whole life insurance policies can serve as both a financial safety net and a means to fund education. Life insurance is crucial for parents with growing families to protect each other and their children, but it’s also important for people in the accumulation phases of their life. Whole life insurance policies contain an important savings element known as cash value. Premium contributions to your policy over time help accumulate tax-deferred cash value that you can then borrow from or withdraw as cash to utilize as an education funding tool. One of the perks is that many schools don’t consider life insurance as a counted asset for financial aid.
Diversify Your College Savings
When planning for college expenses, it’s essential to maintain flexibility. In addition to a 529 Plan or a life insurance policy, you can put money into eligible savings bonds, which can offer another tax-advantaged way to save for education. Starting a Roth IRA as a college fund is another option, offering flexibility in how you use the funds. You could also put money into a custodial account, giving you control over the assets until your child reaches a certain age.
Another alternative is to invest in mutual funds, allowing for diversification and the potential for growth over time. And in some cases, taking out a home equity loan is a viable option. College costs, financing, and government policies can change over time. Having multiple strategies in your financial toolbox will allow you to have options as you adapt to changing circumstances.
Flexibility Is Key
Planning for your child’s college education involves careful consideration of various financial tools and strategies. It’s important to start early, diversify your savings, and stay flexible. Consulting with a financial expert will help you tailor your approach to your unique goals and circumstances, and pave the way for your child’s successful educational journey.
