The Major Components of a Healthy Financial Plan: College Funding

The price of college funding continues to rise.  A recent study by the College Board found that the average tuition increase was 6.5% for the 2009-2010 school year.  This helps partially explain why the average college student has approximately $23,000 in student loans after they graduate.  Because of this, we here at JW’s Financial Coaching feel that saving for college funding is one of the major components of a healthy financial plan.  Going into debt for education is not a wise a decision for your child’s future.  Because of that we recommend you start to develop a plan now before college “sneaks” up on you.

The decision on whether or not to help fund college for your children is a choice, not a requirement, that needs to be determined by the parents.   The decision on whether to fully fund, partially fund or fund nothing for college needs to be decided today and not the fall of your child’s senior year of high school.  It is also good to let your child know today so that they can prepare how their college tuition will be paid for.  After deciding how much to contribute to college there are three main ways to save:

1.)    Education Savings Account- Nicknamed the educational IRA, because all its gains are tax-free.  You can contribute up to $2,000 a year per child in an ESA.  If you contribute $2,000 a year a year from your child’s birth until they are 18 averaging a 10% rate of return you would have approximately $100,000!

2.)    529 Plan- A 529 plan is similar to an ESA in that it allows for tax-free growth if used for college.  The thing you want to be aware of with a 529 plan is who controls where the money is invested.  Some 529 plans have an administrator who determines where the money is invested based on the age of the child.  By going with the flexible 529 plan, you will control the investments rather than an administrator.

3.)    Old Fashioned Way- This is through scholarships, grants, and work-study programs.  This option is particularly attractive to those who have children who are older and do not have a lot of time to save in ESA’s or 529’s.  There are plenty of scholarships and grants for those who are willing to look hard enough.

Saving for your child’s college is a lot like saving for retirement; you need to have a plan in place now instead of waiting until the last minute.  To get more information on setting up an ESA or 529 fund, please contact an investment professional.  By starting to save today you will help your child have a great foundation for a successful career.

JW’s Financial Coaching does not give advice on specific investments.  We can however recommend you to an investment professional.  To sit down with us in person to go over your financial plan please contact us today!

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