By The Galecki Financial Management Team
Many American families have high hopes for their children heading off to college. As Fee-Only advisors, we’ve worked with several clients looking for ways to fund tuition and pay expenses. Education costs can accumulate in a hurry, which makes having a solid plan for handling them a top priority.
Fortunately, there are several approaches our Fee-Only advisors recommend to guide you toward greater financial confidence. These strategies can give you and your child a better sense of the cost of education and offer creative ways to help them stay afloat on the way to graduation.
Save Early With a 529 Plan
529 savings plans have grown in popularity with families and Fee-Only advisors in recent years. They’re essentially savings accounts for future college and education. The plans are especially beneficial because you can grow your savings and pay for approved expenses in tax-advantaged ways.
Compounding interest is the “special sauce” in 529 plans, as with other savings accounts. The earlier you start saving, the more interest you can accrue. Even small, regularly scheduled contributions can make a big difference.
Students use proceeds from 529 plans to pay for qualified education expenses, which may include tuition, fees, housing, supplies, textbooks, meals, and other common collegiate needs. Withdrawals for approved expenses are also federally tax-free, and many states provide other tax benefits as well.
In the state of Indiana, contributions made to the state-sponsored plan result in a 20% tax credit. The credit is capped at $1,500 per year per tax return, which is achieved with an annual contribution of $7,500.
Include Your Student in the Planning Phase
In many families, financial planning is exclusively the parents’ job. But there are lots of advantages to making budgeting a family affair. Your child isn’t just heading off to college; they’re also on the cusp of beginning their own financial journey. Involving them in the project of planning can instill solid financial habits.
Bring your child into conversations about budgeting and financial aid. If they’re still deciding what institution they’ll attend, teach them about comparing schools in terms of investment as well as prestige and academics. Help them understand the long-term implications of student debt and the financial advantage of attending in-state schools, work-study programs, and merit-based scholarships.
Understand What Financial Aid Really Covers
Many families assume that financial aid covers the lion’s share of college expenses. As Fee-Only advisors, we’ve seen many parents and students express surprise that they’ll still pay for many costs out of pocket.
Filling out a Free Application for Federal Student Aid (FAFSA) may help unlock grants, loans, and work-study opportunities. However, not all aid is free. Non-tuition expenses, such as housing, books, and transportation, must be factored into any financial plan. Understand that the “sticker cost” of a college education may be substantially less than what you’ll actually end up paying.
Consider Community College and Transfers
If your student is uncertain about their eventual major or career path, they may benefit from beginning their education at a less expensive community college. They can take care of all their general education requirements at a local school, then transfer to a four-year institution when they’re ready.
Community college is a great way to manage some of the heftiest expenses of higher education without sacrificing the quality of instruction.
Keep Saving for Your Retirement
Finally, don’t de-prioritize your own financial future in favor of your child’s education. Draining your accounts or ceasing your contributions could just create more financial stress down the road. Your child may eventually have to bear the brunt of those losses.
Your child can take a loan for college, but you cannot take a loan for retirement.
Your student may qualify for alternative funding resources, such as loans, grants, scholarships, part-time work, or other opportunities. Our Fee-Only advisors recommend striking a balance between quality education and long-term financial stability.
Turn to Our Fee-Only Advisors for College Planning Assistance
Galecki Financial Management helps families prepare for their children’s educational future with comprehensive planning scaled to varying needs. Clients who work with our Fee-Only advisors have confidence knowing their needs always come first.
To schedule a meeting, call (260) 436-8525 or email [email protected].
About Galecki Financial Management
At Galecki Financial Management, we help individuals and families confidently pursue their financial goals. We’re anything but a business-as-usual wealth management firm. We’re different. Friendly. Casual. And really good listeners. Indeed, that’s a big part of what makes us different. Everything we do is based on what we hear from you, because our experienced team of professionals specializes in comprehensive financial planning, cash flow analysis, IRA rollovers, financial services, money management, estate planning, retirement planning, and advising. We help you identify your short- and long-term goals, and then we work together to pursue them. Lastly, and most importantly, we’re Fee-Only, meaning we’re only compensated for our time. Our only incentive is to help you succeed.