This is the second of a three-part series on saving for college. Each part will focus on strategies and advice for parents of newborns, elementary school, and middle/high school age kids. In other words, no matter how old your child is, it’s never too late or too early to start saving for college! If you’d like to read the first part of our series, start here: How to Save for College: Starting With Your Newborn.

This is the first of a three-part series on how to save for college. Each part will focus on strategies and advice for parents of children at all different stages: newborns, elementary school, and middle/high school age kids. In other words, no matter how old your child is, it’s never too late or too early to start saving for college! Today we start with the littlest littles.

So Grandma wants to help pay for college? Fantastic! Tapping into extended family resources can certainly help parents overwhelmed by college costs. And since tuition payments are exempt from the gift tax, a grandparent’s help seems to be an effective way to disseminate family wealth without negative tax implications.

Right?

Small Expenses Add to Cost of College

College applications have been completed, acceptance letters have been received, and deposits have been made. Now you are receiving the first bill with the college logo on it, which will include expenses for items billed to you by the college: tuition and fees, and room and board if your child lives on campus. But your children are going to have other expenses that you must plan for as a family, like books and supplies, transportation and personal expenses. Additional college planning can help you reduce the likelihood of overspending and accumulating unnecessary education-related debt.

529 Savings Plans: How Bad are the Non-Use Penalties, Really?

Today is 529 Day, and I am sure you are seeing a lot of articles encouraging you to open and fund 529 Savings Plans for your children, grandchildren, nieces, and nephews. At College Coach, we talk to thousands of families a year who are thinking about saving for college, and 529 Savings Plans are one of the most popular ways our clients choose to save for college.

In almost every discussion we have, people ask “What happens if my kids don’t go to college?” It’s a great question to ask, because there are taxes and penalties that apply when people withdraw money from 529 Savings Plans but cannot match the withdrawal to college costs for the plan’s beneficiary.

Are you experiencing sticker shock as your child begins selecting the colleges to which he or she will apply? You aren’t alone. Many families see the school’s published cost of attendance, which generally includes tuition, fees, room and board, books, and personal and transportation costs, and wonder how they will pay the bill. Some cross the school off their child’s list entirely.

The Benefits of Using a College’s Net Price Calculator

Help is at hand! The college’s Net Price Calculator (NPC) will give you an estimate of what it might cost your family to send your child to a particular school. The NPC, which only takes a few minutes to complete, can give you an idea of the need-based aid and, in some cases, the merit aid your son or daughter might receive which will reduce the amount the family will have to pay. The calculator will also estimate your child’s eligibility for work study funds and federal student loans.

Parents often tell College Coach’s Saving for College experts that all, or a large part, of their plan to pay for college involves loans or withdrawals from their 401ks or 403bs. We try to help them find an alternative college finance strategy, as using these accounts to pay for college can be expensive and ruin a parent’s retirement security.

A brief reminder: what is a traditional 401k/403b?

When you fund a traditional 401k or 403b, you allow your employer to take some of your paycheck and deposit it in your retirement account. You don’t have to pay taxes on the income that you save. This is called pre-tax salary deferral. You invest the deposit in assets that you hope will grow in value, and you do not have to pay tax on interest, dividends, or capital gains that are earned within the account. This is called tax-deferred growth. When you do withdraw funds from your traditional 401k or 403b, you must pay income tax on those funds.

It seems hard to pick up a newspaper these days without running into advice from College Coach finance expert, Robert Weinerman!

In an article in this weekend’s Wall Street Journal entitled “August Is Time for a Financial Reboot,” Robert shares his insight for parents of high schoolers on early college financial planning, including scholarship searches, financial aid calculations, and asset allocation for college savings.

And in today’s US News and World Report, Robert offers his perspective on recent student loan legislation in an article entitled “New Student Loan Deal Good, and Bad, for Borrowers.” 

Did you invest in a prepaid tuition plan? Is your child about to go off to college? Congratulations if you answered yes to both of these questions! You probably got a great rate of return and have some of your son’s or daughter’s tuition already paid. And here’s some more good news: all that investment growth you got from paying for college in the past will be tax free to you when you use the Plan to pay for college today. All prepaid tuition plans are 529 plans (except the Massachusetts Prepaid Plan, which derives its tax-free status from another section of the federal tax code) and share all of the tax benefits of 529 savings plans.

Unfortunately, using your prepaid tuition plan is not as simple as writing a check to the college. You’ll want to take some steps now so that you use the plan properly when the bill comes due.

As spring turns to summer, the challenge of applying for college ends and the challenge of paying for college begins.  Though that first college bill can be daunting, remember that you have 3 options to pay for college:  you can tap your savings (your accumulated past income), pay as you go (out of your current income), or you can borrow (committing your future income to pay down education debt).  Choose 1 strategy or combine all 3!