Financial planning can help individuals prepare for large expenses such as college. With a well-written financial plan, individuals can set a defined path to help achieve their college planning goals. At the Kelley Financial Group, you can obtain financial advice in numerous contexts, allowing you to make personalized decisions toward your goals.
Among these is the idea of college and education planning. As your child transitions to the stage of tertiary education, the level of expense can be sudden and debilitating.
However, making plans for these impacts can lead to financially positive outcomes. If you're in Pittsburgh, PA, and require the assistance of professionals for your child's financial college planning, reach out to the Kelley Financial Group at (412) 528-1920.
Here is an overview of some important considerations that should be factored into the planning process.
Cost Center Plotting
One of the biggest mistakes families make when planning for the financial element of college is not adequately identifying the cost centers. This is usually one area in which a financial planner can demonstrate value.
Not only is it essential to think about all the years of college that lie ahead, but all cost centers present must be accounted for. Without doing so, the budgeted amount may be short for reasons beyond extremely harsh and unexpected levels of inflation.
Among the costs synonymous with college is tuition. It's usually the largest by far, and depending on the college chosen, it can differ greatly. A public college that is within Pennsylvania could be your cheapest option.
Opting for a public college in another state falls in the middle of the expense spectrum, while private colleges are the most expensive of all.
One of the advantages of going the private route is that such schools are known for offering a greater pool of financial aid options. It’s essential to consider other fees that may go along with tuition as well to ensure they are factored into the budget.
Some colleges make the room and board expense a part of the tuition, so once that is paid, there is no accommodation-based cost center to worry about. However, if that's not the case, it becomes a requirement to pay room and board expenses if your child is going to be living on campus.
Note that if a college student is not going to be staying at home for the tenure of education, living on campus may not be the most cost-effective move.
There are typically student housing options close enough to the college with the rent amount totaling below what would be paid for on-campus accommodation options.
It's essential to remember that the cost to stay in a building is not the only one that must be considered. Depending on the living situation, other utilities may be a part of the equation.
For example, the presence or absence of meal plans can be a factor as you may be able to ensure your child is fed without the level of expense being high.
Other Cost Centers
Other cost areas are also important considerations, albeit not as expensive as the two highlighted. For example, if an off-campus form of housing is selected, it may not be practical for a student to walk to school if there is a lack of proximity. At that point, it becomes necessary to cover transportation costs to get between home and school.
Additionally, books and other supplies may be needed. The supplies create quite the consideration since different programs have different requirements. Bear in mind that at the point where you start doing college planning, you likely wont know what materials are required.
Other personal expenses must also be considered, as quality of life maintenance is essential. These include groceries, medication, entertainment, etc.
Potential Account Types to Consider
A series of different account types can theoretically be used to save effectively. A basic savings account may be considered, but is often not the most desirable option available, considering the advantages that lie with other account types.
529 College Plan
Tax-exempted deposits are one of the defining features of the 529 college plan. Deposit and qualified withdrawal limits are not present, which is excellent considering the exorbitant amounts that will need to be paid for tuition.
Automatic investment options also create the potential for returns that could increase the value of the account.
Note, however, that the investment options are limited, and if you don't manage to put enough away, getting financial aid can be difficult, as having one of these could affect eligibility.
The United States Department of Treasury issues these, and they are categorized by your money being kept for a defined period with an interest rate attached.
The idea behind it is simple, it's effectively a loan to the U.S. government, which is repaid with interest, creating greater value, and contributing more to your ability to cover your child's tuition.
It's a low-risk account with tax advantages, and it also doesn't have a huge bearing on financial aid eligibility. However, not everyone can get access to the tax advantages. Additionally, the interest rate, while present, is not the largest.
A custodial account is great for those looking to start the planning process early. The account technically belongs to the child, but as a parent, you maintain custody of it and everything within it until the child reaches legal age.
It can be easy to manage, there are no contribution limits, and provided the money is being used for the educational needs of the child, there are no withdrawal penalties. However, no tax benefits are present and financial aid eligibility is low.
When Should Financial Planning for College Begin?
Ideally, the earlier college planning begins, the better. It's-ill advised waiting until the child is more certain of the desired program, as this doesn't usually happen until late in high school or even when it is time to apply for college.
Some parents start planning in some form almost as soon as their child is born, and this is a commendable practice.
Assistance with Education Planning in Pittsburgh, PA
College planning can be difficult, especially since you are accounting for several hypotheticals, which could present different cost centers and different price tags depending on how your child chooses to proceed.
A financial planner helps you to navigate these concerns, eventually culminating in a plan that covers the most bases possible.
Retain the services of a financial advisor by reaching out to the Kelley Financial Group at (412) 528-1920.
This material was prepared for The Kelley Financial Group’s use.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
The Kelley Financial Group and LPL Financial do not offer tax or legal advice or services. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Prior to investing in 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.