College Savings

For most of us, our biggest financial concern is paying for our children’s extremely expensive; and in todays competitive environment, an almost mandatory college education.

The estimated cost for a 4-year public college education would be around $250,000, or $500,000 for a private school. One way to address this concern is to start thinking about saving for college the moment you find out their is a little one on the way.

Here are a few potential ways we help clients save for this significant future expense.

College costs

For the 2014/2015 college year, the average annual cost of attendance (known as the COA) at a four-year public college for in-state students is $23,410, the average cost at a four-year public college for out-of-state students is $37,229, and the average cost at a four-year private college is $46,272. The COA figure includes tuition and fees, room and board, books and supplies, transportation, and personal expenses. (Source: The College Board's 2014 Trends in College Pricing Report.)

  1. 529 College Savings Plan – Probably the most popular method to save for college. This investment savings vehicle operates similar to IRA and 401(k) plans, by allowing parents, grandparents, aunts, uncles and even friends to save for a child's education tax-free through an array of investment options. The contributions are NOT tax deductible in California but the gains inside the account are tax-deferred, and as long as the funds are used to pay for qualified tuition expenses, parents can withdraw the proceeds tax-free.
  2. General Brokerage Account – This type of account allows you to purchase stocks, bonds, mutual funds, and other investments by buying or selling investments you believe will increase in value over time. All brokerages give you the option of setting up automatic monthly withdrawals, which will transfer an amount you specify each month from your savings or checking account to your brokerage account. This can be an easy way to start building up your savings for the future and then when your child goes away to school, you sell the various investments to cover their expenses.
  3. Cash Value Life Insurance - A permanent life insurance policy with fixed annual premiums that generally allows you to borrow against its cash value. Interest rates on such loans are usually reasonable, and many allow you to make payments on a flexible schedule. Your insurance premiums accumulate tax-deferred, and the cash value can be withdrawn or borrowed tax-free to pay for higher education. However, the amount of the outstanding loan decreases the death benefit. And, since life insurance is typically purchased, as financial protection for your family should you die, borrowing against your policy will leave your family with less money in the event of your death.

This list is a high level view of some available savings and investment options to help you pay for a college education. As you consider the various options, keep in mind that each vehicle has positives and negatives. Be sure to educate yourself on how they each work. Your particular situation may be more appropriate for one type of investment versus another.

Saving for college can be challenging. Finding the right savings vehicle is crucial for your loved one’s future and for your family’s well being until that bill arrives.

We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives.

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