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Pay for Your Kids' College the Smart Way

Nov 19, 2019 3 min read

Key Takeaways

  • 529 plans allow a great deal of flexibility.
  • Make sure your goals are attainable.
  • Don’t sacrifice your retirement to pay for college.



Four-year private college costs are increasing year after year . If your child is a few years away from college, your expenses could soon begin to grow exponentially.

And while we all see our children as talented and gifted, odds of getting a full athletic or academic scholarship are pretty low (0.3% to be specific). Truth is, the lion’s share of saving for your child’s college will be your responsibility. So take note of these tips to help stay top of your class on college savings.


1. The 411 on 529s

We know that even the best laid plans can go awry, so it’s best to make a plan that allows for the most flexibility.

529s are very flexible in that they allow for changes of beneficiary, even to the adult participants funding the plan. If a designated beneficiary no longer wants or needs the balance in his or her plan (say, they received a scholarship or could not attend college), the account balance can be transferred to a sibling who plans to attend college or even to the parent.

In addition, 529 plans have high contribution limits. Total 529 plan Opens in new window contribution limits are set by the states and can be as high as $380,000. However, to avoid gift tax consequences, federal law allows single taxpayers to contribute up to $15,000 in one year or make a lump-sum contribution of $75,000 to cover five years. Married couples may contribute as much as $30,000 per year or $150,000 as a lump sum.

Another potential advantage of 529s is that most plans allow you to set it on auto-pilot with automatic investments that link to your bank account or payroll deduction plans from your employer.

While 529s come with great benefits, the IRS allows you to withdraw 529 funds penalty-free only as long as for the expenses are in line with ‘qualified’ higher education expenses. Here’s a quick list Opens in new window of qualified and non-qualified expenses.


2. Beyond 529s

From Roth IRA’s to mutual funds, bonds, annuities or other that are out there, one or a combination of several may be appropriate for your household. For example, a Roth IRA could be a good option to save into because in the event your child does not go to college, your funds can be used towards your retirement instead.

It’s important to understand your options in order to have confidence in your decision. While the process of funding college can feel intimidating, these additional options might ease the burden.


3. Don’t count out government assistance

While many student loan options are income-based, not all are. Sites like Saving for College are great resources for beginning your student loan research, covering student loan options, including loan cap amounts, qualifications and interest rates.

Additionally, The Federal Student Aid center is a one-stop shop for college prep checklists, financial aid, and a college comparison tool with materials in video and PDF format. This site provides resources on preparing for college or career school, applying for aid, consumer protection and more.


4. Set realistic expectations

When parents meet and support their children at their individual ability levels, studies show an increased likelihood of success both in college and in the workplace. Just because your colleague’s son or daughter is headed to Stanford next fall doesn’t mean your child needs to keep up. If a community college is more his or her speed to start, go with it. And it will save you significant money in the long run. While this can sometimes be hard for your child to understand, helping them see the bigger picture is a parenting win that they’ll one day thank you for (you hope).


5. And don’t forget about you

Plain and simple: You can finance college, but you cannot finance retirement. While the numbers are astounding to finance your child’s college education, it should not come at the expense of your retirement goals.

While securing your kid’s future is what every parent wants, it is not advisable to sock away college savings in lieu of retirement funding. Planning for your retirement and setting proper college savings goals could pay off in the long run and will ultimately allow flexibility, and with any luck a timely retirement, should your child’s path to college suddenly change course.


What you can do next

Nothing will beat the feeling of pride when you hear your child’s name announced at graduation, knowing that your hard work and careful planning enabled that moment. And there is no dollar amount you can put on that. So, get educated (pun intended) on your options and save away once your retirement goals are on track. Please consult your tax and legal advisors for advice pertaining to your particular circumstances.

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