How Do I Start Financial Planning For College?
Financial planning for college doesn’t have to be complicated, if you know your options You can easily afford college if you take the right approach and do extensive research. Both students and parents can get the most out of their money by planning for expenses and learning about financial aid options, cost-cutting strategies, tax deductions, and other financial aid options. This guide will help assist you with options for saving for college.
Calculating And Understanding College Expenses
You need to have a good understanding of your costs before you start financial planning for college. Although tuition is the most expensive expense, it’s not the only expense.
Tuition And Fees
The number one expense for financial planning for college tuition and fees is to be considered. This amount will vary depending on the academic program and how many credit hours are required.
The 2020-2021 academic school year average college tuition in the United States is:
- Public university (in-state), $9,687
- Public university (outside-of-state), $21,184
- Private college, $35,000.
In-state and out-of-state tuitions for public universities can exceed over 100 percent. Private schools tend to offer more financial aid options, which can be a factor in your planning. You can also find colleges that charge “comprehensive” fees that include tuition, fees, and room & breakfast.
Room And Board
Room and board are the second largest expense. Higher education institutions usually offer a range of dorm rooms for students on campus, as well as meal plans for those who live off-campus. The cost of the plan you select will vary.
Rent and food costs must be taken into account if the student plans to live off-campus. It may be more affordable to live off-campus in some areas than paying room and board fees. For example, the average annual board and room fee was $11,140 for the 2018-2019 academic year. However, in 12 states, the monthly rent is not higher than $700 making the annual cost $8,400.
Living on campus is a requirement at some colleges. This means you need to consider the cost of your room and board. Some schools will require freshmen to sign up for a meal plan. The differences in the room and board costs between private and public colleges are usually minimal.
Although tuition and room and board make up the largest part of college education costs, it is important to also consider the following:
- The cost of books and supplies depends on which college you choose, and what classes you take. The average cost is $1,240
- Personal expenses: internet connection, groceries, medications, cell phone bills, entertainment, etc. This number varies depending on student needs. The average is $4,000 a year.
- Transportation: Depending on the student’s transportation needs this cost item could add up to $1,000
You should consider setting up an emergency fund or a discretionary account to cover the costs that can accompany college life.
Accounts To Set Up To Save For College
In 2020, the average college graduate has $30,000 in debt. It can take many years to pay it off with low payments and high-interest rates. This debt can be reduced by early financial planning for college.
529 College Plan
529 college planning (also known as the Qualified Tuition Program) is special tax-advantaged savings account that you can use for college expenses. This account is exempt from federal income taxes and the funds are tax-free when they are withdrawn for qualified college expenses.
Each state has its own plans. You can still take advantage of a plan in another state, but residents usually get more benefits.
- Tax benefits
- It is easy to manage
- Automated investment options
- Unlimited contribution
Roth IRAs are unique individual retirement accounts that allow for tax-free withdrawals. Paying for higher education qualifies as well. The Roth IRA account works in the same way as a traditional IRA. However, Roth IRAs are funded with after-tax dollars. Contributions are not tax-deductible. You can withdraw as much as you have contributed without penalty.
- Flexibility (can be used to achieve other goals than higher education).
- Doesn’t affect financial aid eligibility
- There are many investment options
The United States Department of Treasury issues savings bonds to allow you to hold your money for a specified period and earn a fixed interest rate. You are lending the money to the government in exchange for a return on your future child’s college tuition. U.S. savings bonds (Series EE or I) are a great way to save for college. They require less risk and offer tax benefits for higher education if all requirements are met.
- The U.S. government guarantees low-risk investments
- Tax benefits
- Financial aid has a small impact
Custodial savings accounts are savings accounts that you create for your child, but retain full control until they turn 18. The account can be contributed in the same way as a Roth IRA or 529 plan. The money is invested by an account manager.
- It is easy to manage
- It is easy to withdraw money at anytime
- If the withdrawal is made for the child’s benefit, there are no penalties
- No contribution limits
Education Savings Accounts
Very similar to the 529 plan, an Education Savings Account (or Coverdell account) is another option. An ESA allows you to choose from stocks, mutual funds, or bonds. This makes it a more flexible option.
- Federal tax benefits
- Flexibility can be used in elementary and high school education.
- FDIC insurance coverage
You can lock in the tuition price at some universities in-state or other universities years in advance. Only 11 states currently offer these types of pre-paid plans. However, around 300 private colleges or universities have them. These prepaid plans offer similar tax benefits as 529 plans, but they also come with penalties. Even with all these perks, it is important to determine where your prospective student will attend school well in advance.
Financial Aid And Student Loan Options
Financial aid can help you reduce your financial burden when paying for college. Students who are planning to attend college can start filling out the Free Application for Student Aid. This is available from Oct. 1, the year prior to starting at college. FAFSA grants are available to many families, even those with more than $250,000 in annual income. FAFSA submission is a requirement to be eligible for financial aid at any college or university. The federal financial aid formula considers a number of factors, such as income and assets.
Speak To An Advisor At All Seasons Wealth
Our financial advisors are dedicated to helping every client with their financial planning in Tampa Bay. We listen to your needs and help you determine the best course of action to pursue your financial goals. We then work for you to maximize your money’s long-term growth based on the individual’s specific situations and risk tolerance. Our team is client-oriented and focused on delivering results for you. Here are just a few of or services we offer:
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Any opinions are of All Seasons Wealth management In St Petersburg Fl are not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. This material is being provided for information purposes only.
Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors.
As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover education costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.
Favorable state tax treatment for investing in Section 529 college savings plans may be limited to investments made in plans offered by your home state. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.
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