College Investing – Where Do I Start?
Lifetime Career Earnings: H.S. Graduate Vs College Graduate
Finally, an easy question! I wish I could say that the answer was just as easy to take, but it’s not, because college costs continue to go through the roof.
When I do a forecast for anyone saving for college, whether it’s for themselves later on or for their children or grandchildren, I forecast the college tuition inflation rate to be no less than 7%, which is twice the average inflation rate for the rest of the economy.
So, the biggest and hardest part to get through is going to be how much you might have to save and how early you might have to start.
In my neighborhood, there are dozens of young families pushing around baby strollers. When I ask them about their college savings, they let me know it’s really early and they don’t need to start yet. If only that were true.
Right now, a typical in-state school cost for the state of Washington right now is about $14,600 per year, for tuition, room, board, books and lab fees.
If you have a new child this year who will be starting in the fall of 2027, the cost then is closer to $54,000 per year. Other states are more expensive even for state schools.
We’ll do a specific plan for you when we start working together, but just take away from this discussion that it isn’t something to put off!
What’s the next thing to consider?
What it costs to get the money back out, to actually pay for tuition and the other fees of course! With a state-sponsored 529 plan, you can get your money back out to pay the bills as you need to with, get this, absolutely no federal income tax at all!
Even more, you don’t have to live in the state where the plan is based. “What do you mean, where the plan is based?” Every state has to sponsor at least one plan, and in most cases, they partner with one or more mutual fund companies to actually provide the 529 plan structure and the underlying investments.
So, for example, you could live in California and save in the Virginia plan, or the New Jersey plan or the Arizona plan. In some cases, you can get a state tax benefit by using your own state’s plan, but that isn’t necessarily the only deciding factor.
OK, so what happens if Junior doesn’t go to college? It’s fine. The state 529 plans I work with are accepted by any institution which accepts U.S. Federal Financial Aid. So, if Junior wants to be a pilot or a chef or a professional golfer, the funds are still there.
If Junior gets a scholarship, you can withdraw a matching amount from the 529 and re-use it for your own purposes. If he doesn’t use it for undergraduate school, it’s good for 30 years after high school graduation, so he could use it for a Master’s program or a Doctoral program.
And if there’s money left over when all is said and done?
You can change the beneficiary of the plan to a sibling, or grandkids, or even to yourself, and use the remaining funds that way.
If you would like to discuss college investing ideas and opportunities please email me at John@financialideasblog.com.
Related posts:
- The Investor - Advisor Relationship
- Some Financial Advisors Are Doing Well In Today’s Economy
- Invest For The Long-Term? What’s That? I’m Young!
- Your Kid’s College Loan: Who Should Foot The Bill?
- What Does A College Plan Do For Me?
