The day after I graduated from High School in 1972, my parents sat me down to inform me that “they were done.” They said that, now that I was 18, and an adult, that I was on my own. That, if I wanted to go on to college that I would have to figure out a way to pay for it myself!
Well, you can imagine how shocking that was for me to hear! I mean . . . most of my friends had to work while they were in college for spending money, their folks picked up the tab for their tuition. And, back in 1972, tuition was a little more affordable than it is today! In fact, according to the website educationdata.org the average annual cost of tuition then for a public school was only $503, while a private college averaged $1,948. For an entire school year!!
So, while I was not happy about my parents’ announcement, I could work a couple of jobs in the Summer and make enough money to cover my college costs. But, I’m not sure that would be the case today.
In fact, according to that same website, the current annual cost of tuition at a public college is $11,686 and for a private school, it is a whopping $32,769! And, that’s just tuition! Room and Board is averaging in the range of $11,686 to $13,162!
Think about that for a minute . . . the cost of a four-year college degree today can run anywhere from $84,000 for a state-school to nearly $185,000 for a private-school!
Now, there are scholarships and grant money available, but the bottom line is that, you can never start saving for college too early! And, the single best way to sock money away for higher education is in a state-sponsored 529 plan. Money is contributed to this plan and invested. Then, as it grows over the years, none of the earnings are subject to any income tax so long as withdrawals are used for qualified educational expenses, which, in addition to tuition, can include room & board as well as books and required equipment. And, nothing is better than TAX-FREE!
And, for the grandparents out there . . . here’s a little something that I did that you might consider. I set up 529 plans for each of my six grandchildren with a modest initial deposit. Then I alerted our five children that if they contribute any money to their own child’s plan that I would match 50% of that deposit. I explained that it is not MY job to pay for my grandkids’ college, but that I would certainly help . . . but ONLY if they contributed first! And, honestly? I think that is a very fair way to approach helping our kids and, especially, our grandkids!
Now, if you would like to learn more about 529 plans and how they work, please reach out to our office and we can provide you with the basics and show you how to establish one. But, don’t put off saving for higher-education expenses . . . something tells me they’re not going down any time soon!
The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.