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  • Writer's pictureMichael DiBartolomeo

Top Planning Tips for Parents Starting a College Fund Late

Tuition and fees for the 2019-2020 school year average $10,116 for in-state public colleges and $36,801 for private colleges.

If you're late to the college savings party, those numbers can sound impossible to save, especially when you multiply them by at least four years. And that's just for one child.

Before you start looking for a second job or selling everything you own, consider ways to speed up your savings. Starting a college fund early lets you spread out the contributions and build gradually. But you still have time to build up savings before your child graduates, even if you start late.

Take these steps to build your child's college fund no matter when you start saving.

Extend Your Timeline

Do you have your child's high school graduation date set as your college savings deadline? Remember that you don't have to pay for all four years of college upfront. You can pay one semester at a time.

That means you actually have several more years than you think to finish out the college savings fund. You can continue contributing to college savings plans or other savings options while your child is in college. This shift in your savings deadline can help you spread out the contributions a little more to better fit your budget.

Be Picky About Savings Plans

A 529 plan is a common way to save for money with an investment option that's exempt from federal taxes up to the contribution limits. States run the plans and may offer special tax benefits on your state income taxes.

You can open an account on behalf of anyone, but it's often a parent creating a savings plan for a child's education. You are the custodian of the account and your child is the beneficiary.

The money you contribute gets invested, which can help grow your money faster than it would in a regular savings account. You can choose from various investment options, ranging from aggressive to conservative.

While each state has its own 529 plan, you can often open an account in a different state than where you live. This is a good option if another state has a better plan option, lower fees, or other benefits that make it better than your state's plan.

Keep in mind if you choose a plan from another state, you likely won't get the tax benefits your state offers. That's not an issue if you live in a state without income taxes or your state's plan doesn't offer tax benefits. But missing tax benefits by going out of state may cost you more money than you gain from the superior plan.

Compare all plan options, including the fees and potential tax benefits, to choose the best option for your situation.

Maximize Your Contributions

If you choose a 529 plan, you can contribute up to $15,000 per year without paying a gift tax. Contribute as much as you can up to that limit to build the account faster and help it start earning interest quickly.

You also have the option to essentially contribute upfront for five years. You can contribute up to $75,000 in one year for each beneficiary, which is the equivalent of five years of contributions. However, if you contribute anything else in those five years, the extra amount is subject to the gift tax.

If you have the extra money now, you can load up your child's 529 plan so the investment starts growing faster. You're earning more interest on the larger contribution to speed up the progress.

Suggest Contributions Instead of Gifts

Your child has enough toys, trinkets, and gift cards to random stores. Instead of giving grandparents, aunts, uncles, and other would-be gift-givers more ideas for physical items, suggest they donate to the college fund.

Relatives can contribute to 529 plans even if they aren't the custodian on the account. This helps you reach your yearly $15,000 contribution without everything coming out of your pocket. You can also take cash or a check given by the relative to put into your preferred college savings plan.

Partner With Your Child

You don't have to save every penny alone for your child's education. Once your child is old enough to work, suggest that a percentage of each paycheck goes to the college fund. Your child can also contribute at least some of any cash gifts received for birthdays and holidays.

This not only builds up the college savings faster, but it also teaches your child about saving for something specific. It's a great lesson in budgeting and managing finances responsibly.

Prepay College Tuition

A prepaid tuition plan is a specific type of 529 plan. It lets you buy credits at the current tuition prices for future education. This option is typically only available for in-state tuition at public universities, and you may need to meet residency requirements to qualify.

During a 10-year span, between the 2006-2007 and 2016-2017 school years, undergraduate costs at public universities increased by 31%. Locking in tuition prices as early as possible helps you avoid the steady price increases that happen every school year.

If your child is close to entering college, this option can help you reach your college savings goals faster. Even if you contribute the same amount, your money stretches more because you're avoiding the tuition increases that make overall college expenses higher.

Explore Other Funding Options

Paying for college with cash keeps you and your student from going into debt. But other funding options can cut down the amount you have to save.

If you have a financial need, your child may qualify for grants, which essentially offer free money to cover part of the tuition. The federal work study program is a way for students with a financial need to get jobs that can help pay for college tuition.

Scholarships are available for a number of reasons. While academic achievement is often a qualifier for scholarships, others are available to people of different ethnic groups, children of parents involved in an organization, or kids planning to major in a particular field.

Taking out student loans may not be ideal, but it is an option for a portion of college expenses. Federal student loans and parent PLUS loans often have lower interest than other borrowing options.

Hiring a financial advisor can help you solidify your college funding plans. The financial expert can help you evaluate your current situation and plan for funding. You can also get advice on loans and other funding options and how they might affect your finances.

Starting a College Fund

No matter how old your child is, starting a college fund now helps you maximize what you can contribute. Aggressively saving and exploring ways to save on college helps you reach your college fund goals faster.

Do you need help planning the best way to save for your child's college? Contact us now to schedule your appointment.

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