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We all want the best for our children, and for many of us, that means providing them with a good education. Unfortunately, with some four-year degrees now costing more than $250,000, relatively few families have an adequate plan in place to handle the ever-rising costs of college.
When this topic comes up, most families are told by a financial advisor, friend or online source to open a 529 account. This is good advice in many respects. Although a number of tax-friendly vehicles can be used to save for education — such as Roth IRAs and Coverdell accounts — generally speaking, few match the flexibility and benefits of a 529 plan.
I firmly believe in the value of 529 plans for saving for a child’s education — but a 529 is only one part of a robust college plan. Families who stop after opening a 529 account are failing to plan adequately for this significant life event.
Numerous issues must be addressed in planning for education costs. Here are some of the questions advisors should be asking as part of a consultative approach to college planning:
- What if your 529 account is not enough to cover the costs?
- What will schools expect you to contribute toward the cost of education?
- Is a public university or a private college a better fit for your child?
- Are there any tax strategies that might help with the expense?
Every family can benefit from a comprehensive strategy to pay for college. A strategy that makes the most of your family’s resources, incorporates the college selection process and includes an analysis of financial aid and tax benefits will be far more valuable in the long run.
A great starting point is to talk with an admissions consultant or “college coach,” who can help figure out what type of school best suits your child. After you have narrowed your search to a select few schools, work with an advisor who can help determine where your child is likely to be accepted.
The next step is to assess how much and what type of financial aid your child will be eligible to receive at each school. Eligibility for financial aid at Duke, for example, might be substantially different from that down the road at North Carolina State.
A comprehensive plan will also dig deep into your finances to determine your eligibility for tax aid through credits and deductions, gifting or shifting assets to children. Finally, you will want to explore how to best use your personal resources to pay for any funding shortfall.
As you can see, there’s a lot to review when putting your plan together. Since each family’s circumstances are different, every plan will be, too. What successful plans have in common, though, is that they don’t simply start and end with a 529.
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