For many parents and grandparents, saving for their child's college education is a top priority. However, there are some common mistakes they make when it comes to saving for college that can end up costing them more in the long run.
Whether you're just starting to save for your child's education, or you're well on your way, it's important to be aware of these mistakes so that you can avoid them.
1. Starting Too Late
This is a common mistake, and unfortunately it’s one that’s hard to “undo.” The sooner you start saving for college, the more money you’ll generate over time. That much is obvious, but it also goes a step further: most college savings accounts reward and incentivize saving over long periods of time. Meaning, that the sooner you set up those accounts, the more rewards you’ll see vs. starting later.
Ideally, start at birth or sooner. If you’re hesitant about saving because of all the uncertainty - e.g. what if my child doesn’t end up going to college? - save anyway. There are options for repurposing that money in the future, but you won’t have the same options to pull money from other accounts.
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2. Not Saving in the Right Account
Another common mistake is saving money in a custodial account, savings account or even retirement account. While some money saved is better than none, all of these options come with drawbacks and won’t earn you the full potential. Instead, you should always use a 529 savings plan.
A 529 savings plan is designed specifically for college savings. Because of this, these plans have huge tax advantages. Some of the benefits include:
- No income or age limits
- Income tax breaks
- Money is not taxed when withdrawn for education expenses
- High contribution limits
- Contributions qualify for annual gift tax exclusion
- Contributions don’t have to be reported on your federal tax return
- Plans can be changed twice per year
In almost every case, a 529 savings account is the best way to save for college.
3. Planning It All on Your Own
Planning and saving for college is a confusing, and ever-changing process. Trying to do it all on your own is overwhelming. Partnering with an experienced financial planner will help you maximize your savings and return.
Educational Planning Services with GMFG
Be ready when your kids are.
Your kids deserve a valuable college education. But with the costs of college rising each year, funding their education out-of-pocket might seem completely out of reach.
Not with Greater Midwest Financial Group on your side. Our financial advisors can help you develop a customized financial plan that fits your budget, lifestyle and individual needs, whether you’re able to fund monthly or annually.
Planning ahead is the key to giving your child or grandchild the best educational opportunities. Make their future dreams a reality by setting up a plan early so you have plenty of time to save. We’ll help you plan based on the future cost of education, then identify avenues that minimize parental and student costs while maximizing your financial aid, tax credits, deductions and scholarships.
Now is the time to plan for their future. Contact us to get started with our educational planning services.
Greater Midwest Financial Group is a financial advisor firm serving St. Paul, Minneapolis and the wider Twin Cities area. We specialize in wealth management, retirement planning, asset management and other personal finance needs.
