With the cost of a college education at an all-time high, many parents are concerned about how to save money to pay for tuition, living expenses, and other college costs. Consider working with a financial advisor to get your education funding plans started. Learn more about funding your child’s education with McClellan Wealth Management.
Education Financial Planning
A college education is a high-cost, high-return investment. Thus, if you want added financial security and stability for your child in the future, then it is best to start saving for their college fund right now.
Just like other financial plans, there are a lot of ways to go about educational financial planning. So to assist, here is a roundup of financial tips and tricks for financial planning in Birmingham, AL.
5 Ways to Secure Your Child’s Education Funds
As a parent, nothing beats the satisfaction you get from being able to fund whatever dream your child has. Whether it be to become a singer or a licensed doctor. However, without proper financial planning, your child might have to forgo their passion for practicality.
Here are five simple tips for parents in financial planning in Birmingham, AL:
1. Earn More, Save More
Investing is one of the best ways to increase your education funds for your children. You can set up a small business, invest in stocks, or strive for a promotion and better opportunities.
If not, there is a chance that your stagnant savings will get overwhelmed by inflation resulting in less than what you expected in the future. That being said, you will also want to keep your expenses under control even when earning more. Spending more than what you need will only drag you back to square one.
2. Consider the 2K Rule
The 2K Rule is a smart way to calculate your target college funds. The formula is simple – your child’s age x $2,000.
Let us assume that you started saving when your child was three years old. This means that by the end of the year, you should have at least $6,000 for your college fund. At 18, your college fund should be able to cover half or more of the total college fees. Whereas, the remaining balance can be paid off by scholarships, student loans, or part-time jobs.
3. Set Up Custodial Accounts
Custodial accounts are transferable to your children as soon as they turn 18. These savings accounts have no limit and come in two types – UTMAs and UGMAs.
Uniform Transfers to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) hold similar assets. Money, mutual bonds, stocks, and so on. The only difference is that UTMAs can store physical properties as well.
4. Set Up a 529 Plan
529 plans are specifically made to cover college fees. When you use it for education, you can enjoy various state and federal benefits like tax-free withdrawals. There are two types of 529 Plans: Educational Savings Plan and Prepaid Tuition Plan.
5. Budget Funds Realistically
At the end of the day, you will have to find a balance between your expenses and what you can afford. For example, if your child wants to pursue a high-investment college program but you have limited funds, then you can enroll them in a cheaper college or have them apply for scholarships.
Moreover, if your child wants to pursue higher education, you can help them plan their finances accordingly for grad school. This includes showing them the ropes of investment, different types of savings, smart budgeting, etc.
Education Financial Planning With McClellan
There is nothing wrong with practicality and sacrificing expensive dreams for bigger priorities. However, if you can avoid it then it is best to plan ahead of time for your children’s future. With these strategies, you should be able to save more for their education. Contact McClellan Wealth Management to get started today.
Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
529 plan, or “qualified tuition plan,” is an investment account that provides tax benefits when the savings are used for qualified education expenses. Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, federal income taxes may be due on any earnings withdrawn. A 10% federal penalty tax and possibly state or local tax can also be added.