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Preparing for your children’s college

The headlines are enough to make a parent’s heart race. "Grads leave school with two Ds: diploma and debt." "New baby? Expect her college bill to triple."

It’s true. College costs continue to rise, but a college degree remains an excellent investment. And with planning, most families can find a way to afford higher education.

Here are a few things to consider:

  • Save, save, save. Some parents are concerned that their savings will reduce their chance for financial aid. While it’s true that most aid is awarded based on financial need, the majority of aid is in loans, which have to be repaid. According to FinAid (National Association of Student Financial Aid Administrators), parents can expect to pay one-half to two-thirds of their children’s college costs through savings, current income, and loans. Using savings is usually preferable to a loan.
  • Start early. The sooner you begin to save, the more time you will have for your money to grow.
  • Decide in whose name you will save. Saving for college in the parent’s or in some cases a grandparent’s name may help improve the chances of qualifying for financial aid based on aid formulas.
  • Check out your investment options. You can invest your college savings in anything you choose: stocks, bonds, mutual funds, U.S. savings bonds, and certificates of deposit are just some of the choices. You should study special college savings plans, such as 529 plans and Coverdell education savings accounts.
    • 529 plans. State-sponsored qualified tuition programs, commonly known as "529 plans" for the section of the tax code that authorizes them, are helping millions of Americans save for higher education. No two 529 plans are exactly alike, so it’s important to study a plan’s features in detail. At Granite Wealth Management we can help you navigate through your choices. Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
    • Coverdell Education Savings Accounts (CESAs). Formerly known as Education IRAs, these accounts let families put away $2,000 per beneficiary, per year, and use the money tax-free to pay for education costs. You choose how to invest the money. Keep in mind, however, that there are income restrictions to make full contributions to a Coverdell account.
  • Don’t jeopardize your retirement. You may withdraw Roth IRA contributions to pay for college expenses without an early withdrawal penalty. However, be careful not to raid your retirement funds to pay for college. Your child has more avenues to pay for college than you have to save for retirement.
  • Apply for financial aid. Financial aid comes in grants, scholarships, work-study, and loans. No matter your savings or earnings, apply for financial aid. You might be pleasantly surprised. Also don’t automatically discount colleges with higher costs. You might be asked to contribute the same amount as at a lower-cost college.
  • Consider other ways to pay. If your savings goal comes up short, your student can work during college (some employers provide education assistance), or consider joining the military as a way to earn money to pay for college expenses. Service through AmeriCorps, Learn & Serve America, VISTA plans are exactly alike, so it’s important to study a plan’s features in detail. At Granite Wealth Management we can help you navigate through your choices. Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

Two helpful calculators:

How much should I save
When should I start saving

Contact the Granite team to see how a solid financial plan can help achieve your goals: Contact the Granite team.

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