Planning For College

Today she's driving her tricycle around the back patio, tomorrow she'll be driving her car around campus. Have you been planning for your child's college education? Will you be ready?

Child Sitting on TextbooksIt's no surprise that college tuition keeps spiraling upward, especially in today's economy. If you think it's expensive today…just imagine what heights it will reach by the time your child is ready for college tomorrow. Is it discouraging? It doesn't have to be if planning your child's college education starts now.

First and foremost

TAKE CARE OF YOUR RETIREMENT!Don't wait! Take care of yourself first. The sooner you start, the more your money will compound and grow. Consult a trusted financial advisor who will help you strategize a retirement plan that will leave you in a comfortable financial position when the time comes to retire. Need be, your child can take out a college loan, but you can't take out a retirement loan.

Should you finance your child's college education?

There are various opinions on this. I'm of the belief that funding a child's college education should be split four ways. To what percentage you make the split …or if you even agree, is up to you.

  • Scholarships/grants: There are many opportunities for scholarships and grants to assist in paying for your child's education. Encouraging a child to take their schoolwork seriously from day one of school through high school will increase the chances of finding "free money" to subsidize those high tuition costs. Good grades should be your child's contribution to their future.
  • Parental assistance: Starting a special college education savings plan as early as possible will give you the most return when the time comes. Be sure to tie it in with one of the available education tax shelter options (see below for more information). Don't even think of starting this college account, however, until you've set up your retirement savings plan.
  • Student loans: Various types of federal student loans are available, and are an excellent choice for students who qualify. Interests rates are low and many give a six-month grace period after graduation before the first payment is due. Research the one that best suits your financial situation.
  • Child's contribution: Your child will, inevitably, be a lot more serious about a college education if he or she has to foot part of the bill. Books? Living expenses? Part of the tuition? It's up to you. Typically, we value something more if we've had to work for it ourselves.

Tax shelter options


  • 529 Plans — These plans offer big tax advantages! Your investment grows tax-free until the child enters college and can then be withdrawn untaxed to pay tuition. This is a savings plan for college education that allows all earnings in the account to be exempt from federal taxes if withdrawn and used for qualified educational expenses. Contributions are taxed before you put them in, but some states let you deduct a portion of them from your state taxes. With this plan you can either a) save money in a tax-deferred account in order to pay tuition at future rates, or b) prepay tuition at a qualified institution at today's rates.
  • Coverdell Education Savings accounts — This savings plan is an account like a Roth IRA, in that you make non-deductible contributions into an account that can grow tax-free which must be used for education. Your contribution limit is affected by your adjusted gross income.

Do your homework!

A well-known site that helps families plan for financing education costs is FinAid.org. Take the time to research all your options when planning for your child's college education. Yes, many offer excellent tax advantages. Some plans, however, may reduce the amount of financial aid for which you may qualify. Every plan has its advantages, disadvantages, stipulations and penalties, and it's up to you to decide which works best for your family. As in all other financial investments, getting wise advice is crucial. Speak to trustworthy financial and tax advisors about getting the most for your savings dollar. You also want to be flexible, since programs and investments continue to evolve. Tax laws and your own circumstances will also change. Review your financial situation with your advisors periodically and make appropriate adjustments. You also want to speak to a high school counselor about available scholarship and grants. When it comes to the high cost of a college education, you want to get the most bang for your buck.

Something to think about

Planning for your child's college education is something you want to start working on now, even though he or she is still in diapers. Once you have a plan in place, stick to it! You'll be able to sleep like a baby once you do.

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