With education costs rising, finding ways to help our children pay for college is a priority for many of us.
A goal for many of us, is to see our children go to college. Although a worthy goal, it’s also one that takes focus, discipline, and smart saving to achieve. Let’s explore options that could help pay for college.
As a reference point: for the 2017-2018 academic year, the average cost to send your child to California State University per year, living on campus and inclusive of all costs (tuition, room, board, books, etc.), is $28,086. The cost to attend the University of California is $34,700. With such costs, it’s hard not to feel overwhelmed.
A 529 plan is a state-sponsored savings plan designed to encourage saving for college costs. If you select an age-based portfolio for your child, your money is invested in a group of mutual funds that shifts automatically from aggressive investment options to more conservative choices as your child nears college age.
Pros & Cons
529 plans allow your earnings to grow income-tax deferred. When money from this plan is used to pay for qualified higher education expenses, it is also free from federal income tax.
Because money in a 529 plan is ear-marked for college expenses, there are penalties if you take it out to pay for other needs. Although some may see this as a con, it actually provides parents with discipline to keep their money where it is, and to use it only for college expenses. There are penalties if you don’t spend the money ear-marked for a 529 plan on college and college-related costs.
Your investment options are limited with 529 plans and may include funds with high fees.
Lastly, if you’re a California resident and choose a California state-sponsored 529 plan, withdrawals for qualified higher-education expenses are free of California state income tax as well.
Scholarships and financial aid may be options for your child and can help reduce your total bill. Your child’s school counseling office can direct you to resources and explain more about applying for financial aid. You may also request financial aid information from the colleges and universities your child is considering.