College Savings 101

As tuition costs continue to climb, saving for your child’s college education can seem like an overwhelming task. To help guide you through it, Family Times recently asked Jillian Kerekes, director of education and online marketing at SECNY, some common questions about the process. This is what she said:

How Do You Determine How Much Money Should Be Set Aside — and When Should You Start Saving?

That amount will be different for every family, but comfort is key.

“The average costs of a state school are about $12,000 per year, and a private college is more like $42,000,” said Kerekes. “Most families are not going to be able to pay 100% of the costs for 100% of their children while also hitting their retirement targets. So, figure out what you can do and be honest about that.”

There are online tools designed to help with this—like SECNY’s College Savings Calculator.

“A trusted professional financial planner or advisor is also an excellent resource to help provide guidance and create a realistic plan for your family,” said Kerekes.

And remember, it’s never too early to start.

“There are great, tax-beneficial ways to grow your savings over time for educational costs,” said Kerekes.

What Are the Best Savings Options Available to Parents?

Kerekes suggests beginning with a 529 plan.

“These are state-sponsored plans that have tax advantages and can only be used for educational costs (this does include trade and vocational training),” she added. “Money in a 529 plan continues to grow, tax-deferred, until it is withdrawn.”

Of course, not every college expense is strictly educational.

“Once you have found the right amount for you to set aside in a 529, look into other savings, like CDs, that give you a bit more flexibility on how you spend the savings and when you can access them,” said Kerekes. “This way, you are able to access funds for non-educational reasons — so if your child needs a vehicle or assistance with housing, you can pull from these accounts.”

What Are the Alternatives If Your Child Doesn’t Use the Saved Money, or If Scholarships Cover the Full Cost of Their Education?

You can use the funds in a 529 plan for other educational expenses — or even transfer them to another child.

But those aren’t your only options.

“It really depends on your life: you can choose to save this money for a future grandchild, use some of it to pay student loan costs, and you can even roll $35,000 into a Roth IRA (there are a lot of rules here, so definitely check with your financial advisor),” said Kerekes.

How Can Parents Involve Their Children and Teens in the Saving Process?

“I would say to begin having money talks as early as you can,” said Kerekes. “Have conversations about real costs and about earnings, and as a parent, talk about how much you can actually pay towards your child’s educational goals.”

One way to get them involved is by using real-world scenarios.

“When you’re at the grocery store, talk about how much you have available to spend and have them help make those choices,” said Kerekes. “Give them a budget and allow them to choose gifts for their friends or family. Kids are capable of understanding more than we think sometimes. Putting these practices in place at a young age creates positive financial behaviors leading into adulthood.