With college acceptance letters arriving at households this month, prospective students are enthusiastically gearing up for their future away from home. Meanwhile, the panic is setting in for many parents with children in diapers, starting high school, or somewhere in between, fearing “How are we going to pay for this??!! And still set aside enough for our own retirement??”
According to the College Board, four years of college tuition and fees cost, on average, $40,000 at a public university and about $130,000 at a private college. Parents are faced with a hefty bill if they want their kids to be able to fulfill their dreams.
While there is no quick solution, there are things parents can do, and plans they can put into action, that will minimize this panic, and answer the question of how they are going to pay for it all. Curtis Smith, a Thrivent Financial representative, is all too familiar with this financial demand, and has put together some of his most sought after college savings tips for parents.
If you’re trying to save for a child’s college education, you’ve probably heard about Coverdell accounts, custodial accounts, and 529 plans. However, there are other college funding options you may not be aware of. An easy way to remember them is with the acronym “TIP.”
Trusts: Trusts offer flexibility because they can be used for many purposes, including education. A few things to keep in mind, however:
- While contributions to a trust have no minimum or maximum amount, exceeding the annual gifting limit could reduce the donor’s lifetime gift and estate tax exclusion amounts.
- When a family creates or uses a trust for any purpose, it can affect a student’s eligibility for need-based financial aid.
- Before proceeding, contact an attorney to see if a trust could be right for you.
IRAs: While mainly used for retirement savings, traditional and Roth IRAs allow you to withdraw funds penalty-free if used for qualified education expenses. In addition:
- Your contributions can grow tax-deferred until withdrawal. And with a traditional IRA, they may also be tax-deductible.
- Using IRAs for college funding can affect your retirement strategy and need-based financial aid eligibility, so be sure to contact a financial representative about this option.
Permanent life insurance: The primary purpose of life insurance is to provide a death benefit to your beneficiaries. It also can be useful in college funding in two ways:
- If something should happen to you, having a permanent life insurance contract can help ensure that financial goals like education funding can still be met.
- Permanent life insurance contracts may accumulate cash value that can be used during your lifetime and also provide additional flexibility for other funding avenues as well.
Make wise decisions about your money
The TIPs here may or may not apply to you and your situation. If you want help figuring out what you should do, contact a financial advisor to help you make smart college funding choices.
At Thrivent Financial. your representative can also team up with other financial representatives who are Certified College Planning Specialists to help you with your overall college planning challenge. Visit Thrivent.com/uplan for more information.
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