College days- Staying up late, partying and long days of cramming for final exams. While college is definitely a time most of us wish we can relive, I’m sure I speak for everyone when I say no one misses the loads of college loans we took out to pay for school. In fact, many of college alumni are still paying off their loans years after they’ve initially graduated! While a college education can get you a lot of things in life, it can also get you into massive debt. Education comes with a pretty hefty price tag and it’s not planning on decreasing anytime soon. In fact, the price of a college education is projected to substantially increase! The estimated cost of a standard four-year education from a, in-state public university is $95,000 by the time today’s newborn babies graduate high school. It might not strike you as pertaining to you until you realize this is the generation your children will belong to. That’s right, the price it will cost you to send your child to university will be a whopping $95,000 annually!
So what can you do about it? A lot, actually. There’s no way to reduce the price of an education once your child is ready for it, but there are certainly options to help you acquire the money and save by the time he/she gets there. Mortgage Planner Taylor David observed this trend and put together a list of smart strategies that can help you pay for your child’s university cost when the time comes. These strategies help you save money early and hopefully save thousands of additional dollars in student debt!
Here are the Top 5 smart ways to plan for your child’s college education.
1. Coverdell Educational Savings Account (formally known as Education IRA)
This strategy only works for families with a total household income less than $220,000; this seems reasonable for Middle America. As long as the money going into this savings account is for your child’s education, you can contribute $2,000 per year per child, all tax free!
2. Custodial Accounts (UGMA/UTMA)
This is another strategy that involves a tax free upside. Either you or another family member can contribute to your child’s education in the form of financial gifts of any amount. The first $850 of the investment is tax free and the next $850 is taxed at the child’s own rate.
3. Retirement Plan Withdrawal
The idea of pulling out of your own retirement plan can sound a bit worrisome, it can actually turn out to be a big assistance when funding your child’s education. When you withdraw qualified higher education costs from your retirement plan, they’re exempted from the 10% additional penalty otherwise imposed on withdrawals from IRAs before age 59.
4. Section 529 Plans (also known as Qualified Tuition Plans)
Section 529 plans oftentimes vary state by state, but they all ultimately achieve the same thing. These plans generally allow you as well as other relatives to contribute any amount based on the projected cost of education rather than on your family income.
5. Smart Mortgage Strategies
Yes, the way you handle your mortgage payments can help fund your child’s education costs. Many mortgage lenders offer a “skip a payment” feature, which can come in handy and free up money for your yearly education plan contributions.