College Savings: A Guide to Financial Planning and Preparedness
As it is graduation season, the excitement of higher education fills the air for millions of students and their families. However, before the selection of fall classes, back-to-school shopping, and dorm decorating comes a vital and significant aspect: financial planning and preparedness. The cost of college encompasses more than just tuition, extending to other expenses such as room, board, food, personal necessities, and travel, including gas and airplane fares. Understanding the basics of college savings plans and exploring resources for college readiness can significantly alleviate the financial burden and ensure a smoother transition into this next chapter of life.
Understanding the Basics: 529 Plans
529 plans are a specialized type of investment account that can be used to pay for a wide range of education expenses, including tax-deferred and tax-free withdrawals for qualified education expenses. These plans are sponsored by states, state agencies, or educational institutions and come in two main types: prepaid tuition plans and education savings plans.
● Prepaid tuition plans allow you to prepay for tuition at participating colleges and universities at today’s prices, thereby providing a hedge against future tuition increases. These plans are available even for a student who might not be attending the school for a few years, and while primarily designed for in-state public colleges, some prepaid tuition plans also offer flexibility for out-of-state and private institutions.
● Education savings plans are similar to Roth IRAs or Roth 401(k)s, allowing you to invest after-tax contributions into mutual funds or similar investment accounts that are reserved for a student’s higher education expenses. These funds offer more flexibility with the ability to pay for qualified expenses for colleges and universities (including tuition, books, room and board), as well as private, public or religious elementary or secondary tuition expenses for K-12 students.
It’s important to note that 529 plans can be opened for family members, including children, grandchildren, or other relatives, and can be transferred to different beneficiaries if needed. While every state offers at least one 529 plan option, you’re not limited to investing in your state’s plan, although doing so may offer additional tax incentives.
Financial Considerations for College Students
Beyond college savings plans, there are several financial considerations that both students and their families should keep in mind to navigate the cost of higher education effectively. Here are some practical tips and considerations:
1. Create a Budget: Encourage your student to create a comprehensive budget outlining all expenses, from tuition and books to housing and miscellaneous costs. Be sure to adjust each year as necessary.
2. Education on Responsible Borrowing: Educate your student about the implications of student loans and the importance of borrowing responsibly. Discuss the long-term impact of student loan debt on their financial goals post-graduation, emphasizing the importance of minimizing debt whenever possible.
3. Exploring Financial Aid: Securing financial aid is an ongoing process. Revisit your student’s financial assistance package annually, exploring scholarships, grants, and student loans. Each year revisit and complete the Free Application for Federal Student Aid (FAFSA) to maintain eligibility for aid.
4. Consider Part-time Work: Encourage your students to consider part-time work or internships to supplement their income and gain valuable work experience while in college. Balancing academics with work can foster financial independence and professional development.
5. Take Advantage of Student Discounts and Resources: Many companies and businesses offer discounts for students, such as Apple, Verizon, and Amazon Prime. Taking advantage of these resources can be a great way to maximize savings while in school.
Preparing for college is a big deal that requires careful financial planning and important, ongoing decision making. By understanding the basics of college savings plans and exploring available resources, students and their families can embark on the journey of higher education with confidence and financial stability. This next chapter of a student’s life is an exciting one, and preparation is the key to unlocking all the opportunities that higher education brings.
College Savings Resources:
○ A great free resource for students and parents that demystifies financial aid and helps find schools that will give them the most savings
○ One of the best when it comes to estimating future college costs. Has one of the largest reference guides to find college net price calculators, calculators mandated by the department of education to help families estimate what the price of college might be after financial aid estimates.
○ The website of the Federal Student Aid, a part of the U.S. Department of Education, the largest provider of student financial aid in the nation.
○ A comprehensive list of the best deals and where to find them
Disclaimer:
This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA
ARK Financial Wellness, LLC is an independent firm with advisory services offered through Blackridge Asset Management, LLC, a Registered Investment Adviser. Blackridge Asset Management is an SEC Registered Investment Advisory Firm.
ARK’s YouTube Videos
SECURE Act 2.0 Highlights
What is the SECURE Act? Lisa shares a brief summary of what it is, what the original bill included and how the changes in the SECURE Act 2.0 can help you save for a more successful retirement.
Click here to check out our blog post on this topic.
How to Start Out on the Right Foot in 2023
Lisa shares some questions to ask yourself and your loved ones which will help you to grow financially and personally in the new year.
What is a Fiduciary?
Lisa talks about what a fiduciary is and why its so important to work with someone who is held to a fiduciary standard when it comes to managing your money.
Read more about our Fiduciary Commitment here.
The Financial Future is Female
Traditionally, men have handled the finances. But at ARK, we are finding that more and more women, regardless of their relationship status- Single, married, divorced, widowed – are making the big financial decisions and are managing the day-to-day finances. Watch this video to learn more about the unique challenges and the many opportunities that women have when it comes to our finances. Check out the blog post on this topic also.
Planning for Your Future…and for Your Today
We find that clients sometimes struggle with doing what is needed to save for their future needs and goals, but also having enough leftover to live for today. Watch this video to find out what it means to live for today.
How Much Should I be Saving and Spending at Age 40?
“Where should I be – financially – at age 40?” Or any age for that matter? We get this question a lot at client meetings. While Google and benchmarks can help you get started, they can’t give you the answers you need for your particular situation, lifestyle and goals. Watch more to get tips on how to save and spend your money wisely at any age!
Real vs Fake Financial Advisors
Set the bar high, and do your homework in seeking a Financial Advisor to aid in making crucial financial decisions for you and your family. Get a good understanding of their background, education, experience and services by using free online tools to help you differentiate real from fake Financial Planners/Advisors!
If you have more questions about this, visit our FAQs page.
