As your kids grow older one of the things that becomes more and more pressing in most families is the impending cost of higher education. Whether you imagine your kids heading off to trade school, a four-year traditional university or toward some advanced degree, in nearly every family the potential costs can be daunting.
As early as possible we encourage our clients to formalize what their values and priorities are around higher education. Every family is different, some want to pay for all of it, some are comfortable with student loans, others expect their children to take responsibility for the bulk of the costs themselves. There are no right answers here, but what is important is that you are clear and start planning accordingly as quickly as possible.
If you intend to pay for all or a portion of your children’s higher education, every passing day reminds you that you should be saving. Or, if you are already saving, wondering if you could be doing better. Before you start socking money into an account, you need to consider your options and the benefits and restrictions of each.
There are many different ways families have historically paid for college costs:
1. Taking money out of their home with a home equity line of credit or a cash-out refinance
2. Using tax-preferential government bonds like EE or I bonds
3. Using accounts that represent an irrevocable gift to the minor like an UGMA or UTMA
4. Utilizing funds from retirement savings like Roth IRAs, IRAs, and 401ks
5. Building up savings in non-qualified accounts in the parents name
6. Coverdell Educational Savings Accounts
7. Various state-sponsored 529 plans
8. Setting up or utilizing trust funds
It’s not just deciding on the type of account that you are going to use, you also have to decide on what you are going to fund it with. There are so many different options that it is almost impossible to be confident you are making the best choice. Add to that trying to figure out how it might impact the amount of financial aid available it is no wonder parents lose sleep over this! A Trilogy advisor is equipped to help you clarify your educational goals and also to look at them in the context of all of the other financial priorities.
1. Do you know what education options might be a good fit for your child(ren)?
2. Have you considered the costs of those institutions including inflation?
3. Do you know what future grant/loan/scholarship opportunities are available to you?
4. Are you aware of how the FAFSA (Free Application for Federal Student Aid) works and how different account types affect your eligibility?
5. Have you integrated your college savings goals with your families other financial priorities?
6. Do you have a plan for how to allocate which savings to which priorities?