Do you know what itcosts to go to collegethese days?
If not, you should probably sit down for this.
A four-year degree?Youre looking at $38,270.
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And thats just the average.
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Whether its a community college, a state school or an Ivy League institution, higher education is costly.
Americans have more than$1.7 trillion in student loan debtto prove it.
It might even be why youre reading this right now.
But, its important to not let that dream lead you astray.
Instead of asking yourself what you should or need to contribute, ask yourself what youcancontribute.
We all know the earlier you begin to save, the better off youll be.
Would you fund this over funding your retirement account in a healthy and appropriate way?
Magnuson has seen many parents take on heavy financial burdens for their children.
Try not to think about saving for your childs college education in a silo.
Instead, think of it alongside your otherfinancial goals.
Tackle high-interest credit card debt before thinking about your childrens futures.
Then, prioritize your retirement savings.
But you dont have to plan to cover every dollar of your childs education.
Here are some pros and cons of the most common options.
This means that your savings are protected from the volatility of the stock market.
You also have the option of investing in certificates of deposit, or CDs.
After that time ends, you receive your full deposit back plus interest.
The interest you receive from CDs is usuallyno more than 2%.
Con: Even 2% is very far from most investment targets.
And, in 2024?Its up 16.2%.
For short-term savings goals, it might be best to avoid the possibility of a market downturn.
But if youre investing for the long term, the market will provide much more interest.
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What this means is that your returns will more closely mirror the market.
And in most states, youll receive anincome tax deductionor credit for contributions you make to the 529 plan.
Con:The downside of a 529 savings plan is that it can only be used for college expenses.
Magnuson encourages his clients to consider this option.
You also must be a resident of the state in which you have the plan.
UGMA and UTMA Accounts
These accounts were developed in the mid-1950s and revised a decade later.
Both were subsequently named after the legislation that established them.
The Uniform Gift to Minors Act and the Uniform Transfers to Minors Act both concern the transfer of securities.
Pro:There are no restrictions on what the child can use the money for.
Con:For UGMA accounts, control of the account is given to the child at 18.
For this reason, the accounts tend to draw criticism.
Magnuson says they are the only saving option that he would encourage investors to reconsider.
And as a parent (or grandparent), you will not be able to intervene.
UTMA accounts usually transfer at the age of 25.
Ultimately, youll have to assess your own level of comfort if youre considering this option.
Some grandparents will open 529 accounts in their name as a way around this.
The FAFSA is a gateway to consideration for grants, loans, need-based scholarships and even work-study jobs.
Its used at two-year schools,four-year institutions and even some vocational schools.
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But it doesnt mean those plans will cover everything students need to get through all four years of school.
Start talking about college plans when your child enters high school.
Ask them about their ideas, dreams and goals and expect them to fluctuate during their teen years.
During these conversations, be open about your familys ability to pay for college.
Encourage your child to find part-time work to help save, too.
We cant personalize articles for our readers, so your situation may vary from the one discussed here.
yo seek a licensed professional for tax advice, legal advice, financial planning advice or investment advice.
Lisa Rowan (@lisatella) is a former staff writer at The Penny Hoarder.
Former editor Jake Bateman contributed to this post.
