One of the challenges of financial planning is being willing to make sacrifices in the short-term for a payoff sometime down the road. Whether it’s buying insurance, saving for a home or wedding, or contributing regularly to your 401k, there may be years or decades before you use that money.
Last week, we drove with our son to drop him off for his freshman year at college. This is a huge milestone in his and our lives. There were the typical bittersweet emotions – happiness that he’s starting this new chapter, the uncertainty of how it changes life at home for us and our daughter, and of course, the sadness of missing him and concern that he’ll be okay on his own.
And then there’s the financial part of it. Paying for tuition, room and board. and other college expenses is something we’ve been thinking about for 18 years since we started his 529 plan. All that theory about the importance of saving became real very quickly. Instead of paying into his account as we’ve been doing monthly for almost two decades, we began withdrawing that money and using it. It felt like a momentous occasion – when theory becomes reality – when financial planning really pays off.
Some quick college planning tips:
For those with young children:
- Start saving early. A 529 plan is a great way to save for educational expenses but there are other ways as well. Savingforcollege.com is an excellent resource.
When your kids are in high school:
- Spend some time assessing what type of school is appropriate and/or affordable for your child based on their interests and aptitude as well as your income and assets. A local junior college is a great option for many who may not be ready yet for the 4-year school experience.
- Think about what you can afford (as if you were assessing the mortgage payment when buying a home) rather than aiming for the “best” school to which your child is accepted and then figuring out how to pay for it later.
Once you start paying for college:
- If you have a 529 plan, make sure you keep receipts and match withdrawals from your plan with actual expenses by year.
- Determine whether you qualify for the American Opportunity Tax Credit. This may also affect how much you withdraw from a 529 or other educational plan each year.