By Jeffrey J. Buonforte
College is expensive. If one or more of your children plans to pursue a higher education, it may require some planning to be ready for this expense. How are you going to afford it? One way is to set up a college financial plan. Given the current economic climate, it may be more challenging than ever for some families to afford college. Planning takes into account economic conditions and a family’s ability to save.
The earlier you start, the harder your money can work for you, and the more chance it will have to grow over time. The hardest part is getting started. But it can be easy if you begin by answering these questions:
1. How many children do I expect will go to college?
2. What type of college will each student attend? Public? Private? 2-year? 4-year?
3. How much do these schools cost annually today? How much will they cost by the time my children go to college?
4. How many years do I have before my children go to college?
5. How much can I afford to save each year?
6. How do I plan to get the rest of the money needed?
There are a variety of options available to help pay for college including, investment accounts, certificates of deposits, a home equity line of credit, federal loans, private loans, scholarships, series ee bonds, and high-yield savings accounts.
One of the more popular savings vehicles is the 529 plan, an education savings plan operated by a state or educational institution. There are two types of 529 plans:
• Savings plans funded with after-tax dollars that are invested in mutual or similar funds. Earnings grow tax deferred and distributions are excluded from income when used for qualifying higher education expenses.
• Prepaid plans let you pre-pay the costs of an in-state college education in today’s dollars for the equivalent amount of tuition in the future. Each state offers its own 529 plan, but you don’t have to select the one offered by your state.
Retirement accounts, from a Roth to a regular IRA, are sometimes used—but don’t be tempted. Using retirement dollars to pay for college may not be the best use of your money especially if it requires you to pay income taxes. A home equity account may be a better option because retirement savings grows tax deferred.
Once you establish a financial goal for a college savings plan, you can explore options to reach it. There are plenty of resources online on how to save for college. Check out www.savingforcollege.com
Lakeland Financial Services consultants are available to offer one-on-one counseling for families interested in creating a financial plan to fund higher education. For more information or to set up an appointment, visit lakelandbank.com, call 866-224-1379 or visit any of our office locations.
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