If you have children, you’re aware that it’s to back-to-school time. Today, that might mean you need to go shopping for notebooks and pencils. But in the future, when “back to school” means “off to college,” your expenditures are likely to be significantly greater. Will you be financially prepared for that day?
The average cost for one year at an in-state public school is $22,261, while the comparable expense for a private school is $43,289, according to the College Board’s figures for the 2012–2013 academic year. And these costs will probably continue to rise.
To illustrate the importance of getting an early jump on college funding, let’s look at two examples of how you might fund a college education. A 529 plan is one way — but not the only way — to save for college. (The following examples are hypothetical in nature and don’t reflect the performance of an actual investment or investment strategy.)
Example 1: Suppose you started saving for your child’s college education when she was 3 years old. If you contributed $200 a month, for 15 years, to a 529 plan that earned 7 percent a year, you’d accumulate about $64,000 by the time your daughter turned 18. With a 529 plan, your earnings grow tax free, provided all withdrawals are used for qualified higher education purposes. (Keep in mind, though, that 529 plan distributions not used for qualified expenses may be subject to federal and state income tax and a 10 percent IRS penalty.)
Example 2: Instead of starting to save when your child was 3, you wait 10 years, until she turns 13. You put in the same $200 per month to a 529 plan that earns the same 7 percent a year. After five years, when your daughter has turned 18, you will have accumulated slightly less than $15,000.
If you don’t want to be in a position where you have to start putting away huge sums of money each month to “catch up,” start saving as early as possible.
It’s tempting to put off your savings for another day. But those “other days” can add up — and before you know it, college may be looming.
You may want to set up a bank authorization to move money each month into a college savings account. And, as your income rises, you may be able to increase your monthly contributions.
Save early, save often: It’s a good strategy for just about any investment goal — and it can make an especially big difference when it comes to paying for the high costs of higher education.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor, Brenda Heggen.
Information from Edward Jones, provided by Brenda Heggen, Edward Jones financial advisor, 8841 Northpark Court, Johnston, 515-278-2052.