Paying for college is expensive, which is why college financial planning should really begin as soon as each child is born. But, let’s be honest. Sometimes life gets in the way, and, before you know it, college is right around the corner, and you haven’t done as much college financial planning as you would have liked. You’re not alone. Without any college financial planning, many parents and kids find themselves in a difficult situation. Now that your student is quickly approaching their college years, it is time to do some college financial planning together.
#1 Start Saving ASAP Ideally, parents should start saving for college when their children are little. The sooner you start contributing to a college savings account, the more you’ll have saved. Consider opening a 529 college savings plan. This type of investment plan lets you withdraw funds tax-free for college expenses. Even if you start saving toward the end of their school years, it will still make a dent in what they’ll owe during their college years.
#2 Keep Saving for Retirement A college savings mistake some parents make is to stop saving for their retirement to start saving for their child’s college. Instead, look for ways to contribute to both – your 401(k) and your child’s college savings. [Related Read: https://www.401kmaneuver.com/saving-for-retirement-vs-college-which-is-the-best-choice/]
#3 Have the College Money Talk with Your Kids One of the most important parts of college financial planning is talking to your kids about it. Don’t make the mistake of allowing your child to think you are going to pay for college in its entirety when that’s not your plan.
#4 Talk to Your Kids about Their Financial Responsibility While you are speaking to your kids about what you are willing to contribute to their college expenses, it is a good time to talk about your expectations of them. For example, are you expecting your child to pay for any college extracurriculars, such as Greek life, spring break trips, or study abroad? If you are paying tuition, will your child be responsible for paying for room and board?
#5 Know the True Cost of College The price a college lists in its brochure is seldom what a student pays to attend. In contrast, the net price calculator allows students to enter specific information about themselves to discover a closer approximate cost. Any college that participates in federal financial aid programs is required to have a net price calculator on their website.
#6 Ask for College Contributions as Gifts Throughout the high school years, ask family members to give college contributions as gifts for birthdays, holidays, and graduations. For example, grandparents can deposit directly into 529 plans or buy non-cash college gifts like computers or textbooks.
#7 Avoid Paying from Your 401(k) You may be tempted to withdraw from your 401(k) to pay for college. The problem with this is that, depending on your age, you may be hit with a withdrawal penalty. There is an option for a 401(k) loan, but there are stipulations, such as paying it back within 5 years. [Related Read: https://www.401kmaneuver.com/why-a-401k-withdrawal-should-be-your-last-resort/]
#8 Help Kids Create a Budget While in School Before you drop your kids off at college, you need to teach them how to budget. You don’t want them to blow through their college savings account in the first semester eating out and buying things online. Go over what they are responsible for paying each month so they can save accurately.
#9 Explain the Ins and Outs of Student Loans When the time comes to fill out the FAFSA, do it with your child. Don’t simply fill it out yourself. Walk your child through the loan process and explain what everything means.
#10 Encourage Kids to Work Part-Time Encourage kids to work part-time to help cover college costs. It’s actually proven to be beneficial – and not just financially.
#11 Calculate Your New Budget Take into consideration what your new budget will look like. For instance, if your child is in college, you will no longer pay for as many groceries at home or sports. Can you take the money you would use to pay for things while your child was living at home to help pay for college expenses?
#12 Speak to a Financial Advisor It’s always a good idea to speak with your financial advisor about suggestions for paying for college. They’ll help you strategize withdrawals and make college financial planning less stressful.
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