As students head back to college, millions of parents are hoping their younger children someday can do the same. With the high costs of college continuing to rise and many students and families saddled with heavy debt, saving for college has become as important as ever. Many people started savings plans early, while others either could not afford to or procrastinated. The bottom line, says financial professional Alexander Joyce, is learning all the options that fit with a family’s financial situation.
“It’s never too late, but most people wish they had started sooner, and many don’t know what investment option is best for their college funding needs,” says Joyce, president/CEO of ReJoyce Financial LLC and author of ReJoyce In Your Retirement: Everything You Need To Know To Get Everything You Want. “Be honest and realistic about the college part of your family financials, and from there you can decide on ways to get there in discussions with a planner.”
Joyce says the following points should be explored and evaluated before going forward with a college savings plan:
Your risk tolerance level. Before committing to a college savings plan, it’s important
“Just like anything in life, the higher the risk, the higher the potential reward,” Joyce says. “
The pros and cons of 529 plans. The 529 plan is an immensely popular college savings tool. Among the benefits are tax-deferred growth and tax-free withdrawals when savings are used for qualified education expenses. And as of 2019, individuals can contribute up to $15,000 per 529 plan, per child annually without triggering a gift tax. However, there are some disadvantages, such as limited investment options and a 10 percent tax penalty applied when money in the account is used for non-qualified education expenses.
“The 529 has traditionally been the way for many families because you hear about it the most,” Joyce says. “But if you’re getting a late start on college savings, this may not be the plan for you. You may have to play catch-up by contributing larger amounts, and you also have a shorter window for seeing your investments recover from market volatility.”
Non-traditional college savings plans. “One of the best things some people can do is look outside the box of traditional planning vehicles,” Joyce says. “There’s a big argument for adding an additional level of equities — some say you would be better off buying a mutual fund or exchange-traded fund (ETF) to fund college. For example, with some funds averaging 10-15% in the
“When drawing a conclusion on a plan of action, stick to it the best you can,” Joyce says. “Consistency wins the race.”