On The Shore On The shore — 01 February 2014
Four tips to help save for a child’s education

The good news: According to a recent report by the College Board, tuition and fees for in-state residents at public four-year colleges increased by 2.9 percent in 2013-14, the smallest increase in over 30 years. The bad news: Tuition, fees and room and board still run about $18,391 per year for a four-year public college, or $40,917 per year for a private school. And, as many parents already know, those numbers can go even higher; a year at Duke University, for example, can exceed $58,000.

What should parents do when financial aid is not an option? 

Plan in advance. “Some parents, even the affluent, are only willing to pay for a state school, or only for an undergraduate degree,” says Richard Gotterer, a senior financial advisor with Wescott Financial Advisory Group in Miami. “First decide on what you’re willing to spend.”

Save early. According to a 2012 survey by Legg Mason, one of the most common mistakes by affluent Americans is to start saving too late. “Start the minute they’re born,” says Mari Adam, a certified financial planner in Boca Raton. “What’s really on your side is time and compounding.”

Invest right. The Legg Mason survey also found that affluent parents fail to invest properly. Many withdraw from savings or rely on current income to fund college expenses. But there are better ways. Earnings in a 529 plan, for example, are not subject to federal tax as long as withdrawals are used for qualified college expenses. Many states offer prepaid plans that lock in the cost of tuition. And don’t forget about gifts. Parents or grandparents (or any individual) can transfer $14,000 a year per person as tax-free gifts; that money can even be used to fund a 529 plan.

Don’t underestimate the cost when planning. Adam says she used to estimate the cost of a private school at $35,000 per year. “Now, it’s $55,000,” she says. “There’s been a lot of inflation.”

One last piece of advice: make sure college is right for your child. A Pew Research Center analysis estimated that a typical adult with a bachelor’s degree will earn $1.42 million over a 40-year career, compared with $770,000 for a typical high school graduate. Determine first if the cost of college justifies that difference — and what your child really wants.

Robyn A. Friedman

 

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