Paying for college is one of the greatest gifts a parent or grandparent can give to a child, yet one of the largest expenses many families will ever face. Everyone wants to help their children or grandchildren realize their dreams: whether it’s to become an astronaut, an engineer, a teacher or a technician. However, not everyone knows how expensive a college education can be.
According to the College Board, Public four-year colleges charge, on average, $7,605 per year in tuition and fees for in-state students. The average surcharge for full-time out-of-state students at these institutions is $11,990. Private nonprofit four-year colleges charge, on average, $27,293 per year in tuition and fees. Public two-year colleges charge, on average, $2,713 per year in tuition and fees. Of course, that’s not the total price. You still have to live somewhere, eat, buy books and supplies, and do your laundry.
If you plan far enough in advance, there are several savings options and resources parents have today designed to help save on or even fund the cost of higher education, including:
· 529 College Savings Plans
· Coverdell Education Savings Accounts
· UGMA/UTMA registered Investments
· Education Savings Bonds
· Traditional Individual Retirement Arrangements
· Roth Individual Retirement Arrangements
· Gifting of highly appreciated stock or property
· Parent’s Investment Savings
· Scholarships
· Grants
· Federal work-study programs
· Student Loans
· Outright Cash Gifts to the Student (could have Gift Tax implications)
· Payment made directly to the Institution (no Gift Tax implications)
· Wages earned by the Student (Click Here for a useful Tax Article on Employing your Children)
In addition to the list mentioned above, high income families may also want to implement a few other Tax Strategies, including the proper use of the “Kiddie Tax”, alternatives to claiming income tax dependents, gifting of highly appreciated assets, and ultimately the probable benefit of Educational Tax Credits.
As always, don't forget the "Golden Rule" of any good financial plan: Insure it, whenever possible. For a young family just starting a College Savings Plan, a term life insurance policy may be inexpensive enough to insure that a child's College Savings Plan if, due to an untimely death, the parent(s) are unable to see the plan through.
Each of the options mentioned above have their own income tax implications, contribution limits and return potential, but all should be considered in any College Savings Plan.
A well-developed tax, savings and investment plan is crucial to effective college planning and could help bring peace-of-mind to you and your Student. For more information on how these, or any other College Planning techniques may work for you and your family, simply give us a call at 949-766-7808, toll free 800-350-1299.
The return and value of investments will fluctuate with changes in market conditions. When redeemed, shares may be worth more or less than their original cost. Consult a qualified tax and securities representative before taking action. Insurance company guarantees are based on the claims-paying ability of the issuer and do not protect against market fluctuations.