One of the ultimate challenges for parents is saving money for their child’s higher education. It’s truly daunting. Do you stash away money in a regular savings account, a money market account or a tax preferred account? How much money do you actually need for each child and when do you start saving? Kidding Around Greenville sponsor Parent Financial are experts in helping families structure their monthly budgets and come up with solid plans for their financial future.
We sat down with Court Creeden, founder and president of Parent Financial, to answer the burning questions about saving for college and helping your kids get off to a great start for their college career.
Tips for saving for college
Kidding Around Greenville: With the joy of having a new baby comes a lot of financial responsibility. Should parents start thinking about saving for their child’s college education soon after birth?
Court Creeden: Ideally the sooner you begin planning for college the better. However, as a new parent the initial focus should be on making sure that all of the basics have been taken care of first. You should consider getting a will completed, updating your life insurance and long-term disability insurance, and making sure you have an adequate emergency fund. Consider those items the foundation of your financial home. Once completed, you can move on to bigger goals like building your retirement nest egg and beginning to save for college. We all know that the sooner you start, the smaller amount you need to save, but resist skipping these basic items to start saving for college.
KAG: On average, how much money should parents try to stash away for their child’s college education?
CC: In speaking with countless families I’ve seen everything from the couple that wants to be able to cover their child going to Harvard or Yale, all the way to the parent who is okay with their child taking out loans for all of college. The most important thing to first determine as a parent is “what are we trying to cover?” That may be 100% of an in-state school or maybe 75% of an out-of-state school. Are you looking to cover just tuition or all of the additional expenses like room and board? For instance ,University of South Carolina’s tuition is $11,482 in 2016, but if you add all of the additional expenses the annual cost is $26,433. So as a parent, are you hoping to cover that entire cost or a certain percentage of it? Based on what the goal is, you can then figure out how many years until your child is going to attend school and then you can start to use calculators or an advisor to help project how much you may need to be saving to achieve your goal.
KAG: How do you help parents start thinking about saving for college at Parent Financial?
CC: One of the most important aspects of saving for college is helping parents understand how it fits into their overall financial plan. Far too many parents “think” they are on track for retirement, but really don’t know if they are or not. Without that clarity, they begin to focus on putting large sums of savings in accounts for their children’s education. I always remind parents that a child can always take out loans for school, but there are no loans for retirement. So first we need to make sure the parents are on the right track for retirement, then from there we work with them to make sure they have a clear understanding of how the various savings plans work to ensure they are maximizing opportunities to qualify for financial aid and will not be penalized or taxed for having the money in the wrong types of accounts when they need it. I like to help them think about saving and investing as an overall plan in places that are accessible and flexible so that if you need the money you can access it to help. However, if your child gets a scholarship or doesn’t need the money, you aren’t penalized and taxed to get your own money back to use for other purposes. So we really look to help parents build wealth that is in line with their long-term goals, not just for one particular goal like college.
KAG: There are family budgets that may be too tight in their child’s early years to save for college. What options are available for families who just can’t put anything away for their child’s education during early childhood?
CC: With a limited surplus it can be really tough to save when children are young. Just as important is for parents not to fall into the trap of waiting for a large surplus to appear when the child or children are out of daycare. After-school programs, sports, camps all can be expensive items as the child ages. They tend to eat more, have more social activities and wear more expensive clothing as they age and the funds spent on daycare and baby items can be quickly replaced with the cost of raising a young child and teenager. For this reason, stay focused on finding any areas to cut back on as early as possible. Keeping items like your retirement contributions going to get your company match in the 401k can make a huge difference in the long run. Most importantly, if there are limited funds be sure to have a clear picture of how colleges determine your “Expected Family Contribution” or EFC in the future to make sure the money you do save doesn’t count against you qualifying for any financial aid.
KAG: Are there savings options for grandparents, aunts, uncles, or friends to put money into an account for a child’s college education?
CC: There are a number of ways for family members to help (529’s, Coverdell Accounts, Investment Accounts). One of the most important aspects of saving for college is to have a unified and strategic approach. Family members may not know that a dollar saved in your child’s name is going to count against you (in qualifying for financial aid) more than it would if that same dollar was saved in the parents’ name. It may also be beneficial for the family members to keep the funds in their own accounts and not give the money to the parents or the children to make sure that the money is not counted against you at all in qualifying for financial aid. Instead, the family member could keep the money invested and then when the child graduates, use the funds to help pay off any loans that were accumulated. This could help you qualify for more aid, give the funds four more years to grow, and increase the perceived value of the education by having the child take out and learn about loans prior to them being paid off in full or in part when they graduate.
KAG: Saving for college is overwhelming for many parents. How do you help parents feel less overwhelmed when advising them on saving for a college education?
CC: Parents are busy and they want to make smart financial decisions so the key is to help them understand how the entire process works. When they have clarity on how each of the accounts work and how their overall financial plan looks, it is a much more relaxed picture. Moms and dads stress out about not really knowing how one account vs. another works or the idea that they could pay taxes or penalties or qualify for less aid because they put money in the wrong account. By walking them through a strategic plan we help them have a clear picture of not only where they are, but more importantly, exactly what they need to do in order to get to where they want to be in paying for college.
Want to learn more?
For more information or to schedule a financial planning meeting with Parent Financial, please visit their website.
Court Creeden is a registered representative of and offers securities, investment advisory and financial planning through MML Investors Services, LLC. Member SIPC [www.SIPC.org] 6000 Fairview Road Suite 400, Charlotte, NC 28210 (704) 557-9600. Court Creeden is not authorized to give legal or tax advice. Consult your own personal attorney legal or tax counsel for advice on specific legal and tax matters. CRN 201807-203641
Is your family saving enough money for your kid’s college education?
Kristina Hernandez is a mom of two girls, freelance writer and photographer and New Jersey native who is thrilled to call the Upstate her new home. She loves cooking, trying new foods, and checking out all that Greenville has to offer.