Page 47 - AAA Magazine – AAA Ohio Auto Club – November 2018

Building
a College
Fund
You can plan to meet the costs through a variety of methods.
By Jeremy N. Swank, ChFC
According to Sallie Mae, U.S. families with one or more college students spent an average of $24,164 on tuition, housing and linked expenses in 2015. That was 16 percent more than in 2014.
Statistics like these underline the importance of saving and investing to fund a university education. In its annual How America Saves for College survey, Sallie Mae found that only 48 percent of U.S. families with at least one child younger than age 18 were saving for college at all. Among those that were saving, the average 2015 amount was $10,040 – the lowest figure in the seven-year history of the survey. It’s little wonder that 22 percent of college costs are covered by either parent or student borrowing.
If you’re ready to start building a college fund for your child, grandchild or family member, keep these tips in mind:
Save with realistic assumptions. Don’t rely on outdated perceptions of college expenses; instead, do research on current costs and future projections so you have a realistic goal to aim for. Some parents build college savings without any real goal of how much to save,
not knowing the university their children will attend. Defining the destination should be part of the strategy. It is perfectly OK to tell your children that you will be saving $X for college by the time they are 18, and that they may have to strive for scholarships and grants if they want to go to especially costly universities.
Consider a tax-advantaged account. Remarkably, Sallie Mae’s 2015 survey found that just 27 percent
Don’t rely on outdated perceptions of college expenses; instead, do research on current costs and future projections so you have a realistic goal to aim for.
of households saving for higher education had chosen 529 plans or similar vehicles. Nearly half of the households building college funds were simply directing the money into common savings accounts, giving those dollars no chance to significantly grow or compound through equity investment.
Explore your options with regard to these accounts. You can participate in any number of state-operated college savings plans, not just the one in your state. Another state’s plan may offer you different tax breaks or incentives. Many of these plans now offer more investment choices than they once did, in addition to the traditional age-based options. You also can change the way you invest assets in these plans, sometimes as often as twice a year.
Think twice about opening a custodial account. Uniform Gifts to Minors Act and Uniform Transfers to Minors Act accounts were fairly popular at one time. About 10 percent of parents saving for college still use them, but they have distinct drawbacks. They do not offer tax-advantaged growth and, until the child turns
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