Paying for a college education in the U.S. is expensive, and the upward trend in tuition and expenses doesn’t seem to be lessening. According to the 2017 College Board “Trends in College Pricing” report, the average annual in-state cost for a public university for the 2017-2018 academic year, including tuition and fees, books and supplies, room and board, transportation, and other expenses, was $25,290 per year. For students in private colleges, the cost was nearly double that amount, at $50,900. When you consider fewer than 40 percent of students graduate in four years, the total price tag for a college education can be staggering.
Fortunately, there are some strategies savvy parents can take to plan ahead, making paying for their children’s college educations less taxing.
First, it’s never too early to start saving for your children’s education. Setting aside a little bit of money each month from the time your child is in diapers can reap significant rewards when it’s time to pay their college tuition bills. The Department of Education provides an example that shows saving just $14 a week in an account earning one percent interest will result in a balance of more than $13,000 after 17 years.
You may also want to consider using a 529 plan account to help save for college. 529 plans allow people to save for college on a tax-advantaged basis. Investments grow tax-deferred and, when used for qualified educational expenses, withdrawals are free from federal income tax. Various states offer different 529 plan options; some include state-specific tax advantages, grants, and other potential benefits. You should carefully evaluate options, fees, and potential tax impact before choosing a 529 savings plan.
Some states offer an alternative to 529 savings plans by offering prepaid tuition plans, which allows parents to purchase tuition credits ahead of time. Prepaid tuition plans offer tax-deferred growth and withdrawals, just like 529 savings plans. One major limitation of these plans, however, is that they limit your child’s options to in-state public universities if you want to get the full benefit of the plan.
You could also choose to open an investment account for your child under your state’s Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) law. With these types of accounts, a certain amount of the gains is tax-advantaged. However, any money in the account automatically becomes the child’s money when he or she reaches the age of majority in your state (between 18-21). That means, although you may expect your child to use the money to pay for college, your child could use it for any purpose.
Last (but certainly not least), you can leverage the power of cash value life insurance to help pay for your child’s education. The SmartStart plan, available through Symmetry Financial Group, can do more than just help you save for college; it can help you protect your child’s future insurability. SmartStart is, first and foremost, a life insurance vehicle, providing valuable protection for your child. Because the cost of life insurance is driven in large part by the age of the insured person, it’s generally inexpensive for children. This allows parents to both pay for life insurance and set aside extra funds in the policy’s cash value account. That cash value grows tax-deferred as your child grows, at competitive rates. When it’s time to pay tuition bills, the accumulated funds can be used to pay for college expenses. Best of all, the policy doesn’t end when your child finishes college. He or she can keep it in force by paying policy premiums and can continue to fund the cash value account, providing a valuable asset that can be used to make a down payment on a home, pay for their own children’s educations, or help fund their retirement.
Saving for college takes some pre-planning and effort, but it’s not impossible. When you want to help your child by financing some or all of their college expenses, you have many options. Your Symmetry Financial Group Independent Insurance Agent can help you explore how life insurance solutions can help you give your child the education you want them to have.
To learn more and to request a quote, contact us today online.