Don’t Make These 4 College Savings Mistakes
This is the first time since the recession that Americans are adding more to their college savings account. Sallie Mae has reported that over 50% of parents have started saving for their child’s higher education. Avoid these four common pitfalls when planning for your kid’s undergraduate degree.
1. Not Setting a Goal
Sallie Mae has reported that nine out of 10 parents feel that a college education is a sound investment in their kid’s future. However, a lot of parents don’t calculate exactly how much they’ll need to cover education costs. Only 45% of parents who are saving for college have a goal. According to Sallie Mae, the parents who do have a plan put away 83% more than those without a plan.
2. Not Investing the Money Correctly
Only one-third of parents who are saving for college are putting the money in an education savings account; other parents are simply putting the money in a traditional savings account. Instead, education savings should go into a 529 account so that it can be invested and grow without paying taxes. Keep in mind that the funds will have to be used for qualifying college expenses.
3. Your Retirement Account is the Same as the Education Fund
You shouldn’t have to sacrifice your retirement savings to send your child to college. Plus, you’ll need that money before you retire, which means you could get charged a big penalty. Also, retirement plan withdrawals are seen as income when you fill out financial aid forms, which could hurt your child’s chance of getting aid from the school.
4. Letting Your Kid Pick Any School
It’s important to limit college choices based on cost. This is integral for making a plan and having a goal. Just because you’re saving for college for your child, that doesn’t mean that any college will do. Some may simply be out of your price range. While a lot of parents feel that children shouldn’t be part of “adult” financial conversations, it’s important to get your children involved when you’re discussing their own education.
No matter how bulky your savings account is, it may still pale in comparison to college tuition. Avoiding these mistakes can help you put more away so that the $40,000 per year school your child has his eye on isn’t just a pipe dream.