As August marks the beginning of the back-to-school season, it’s a crucial time for parents to start preparing their children for the upcoming academic year. Amidst the growing checklists and children enjoying the last days of summer, it’s also an ideal time to start thinking about college planning. Education, while invaluable, can be a significant financial burden, one that is not limited to the young but extends to adults pursuing further education. By starting early, parents can take a proactive approach to this financial responsibility.
According to U.S. Census data, college costs have surged by 169% since 1980, while earnings for workers aged 22 to 27 have increased by merely 19%.
The Rising Costs of Higher Education
Today, the financial demands of college, encompassing tuition, room and board, supplies, student loans, and lost income, can surpass $500,000. Consider the following statistics:
- Students at private, nonprofit universities spend approximately $55,840 annually, of which $38,768 is attributed to tuition and fees.
- The average annual cost of college in the United States is $36,436 per student, including books, supplies, and living expenses.
- Over the past decade, college costs have more than doubled, growing at an annual rate of 2%.
- In-state students at public four-year institutions incur an average annual expense of $26,027.
- In-state tuition averages $9,678, while out-of-state tuition is about $27,091.
- Accounting for student loan interest and lost income, the total cost of a bachelor’s degree can exceed $500,000.
Early financial planning for your child’s education can significantly ease the burden when it comes time to make payments or take out loans.
The Benefits of College Savings Plans
College savings plans, particularly 529 plans, offer substantial benefits that can provide parents with peace of mind. For example, taxpayers may qualify for a state income tax credit of up to 20% of contributions to a 529 account, potentially saving thousands of dollars annually. These plans allow for tax-free growth of contributions, provided the funds are used for educational purposes. This reassurance can give parents the confidence they need to start planning for their child’s education.
Additionally, 529 accounts are highly flexible. Funds saved in one state can be used at eligible institutions nationwide, regardless of the state of the account’s origin. These plans typically allow for significant contributions, often up to hundreds of thousands of dollars per beneficiary, with minimal income or age restrictions. Notably, the donor retains control over the account, deciding when and for what educational purposes withdrawals are made.
Consulting with Advisors
Given the complexity of 529 plans and the variations between state offerings, it’s important for parents to seek guidance from a financial advisor or a 529 plan manager. This support can help them understand the specifics and maximize benefits, providing them with a sense of direction and confidence in their financial planning.
As families gear up for the back-to-school season, educating children and young adults about budgeting and prioritizing expenditures is also a prime opportunity. Beyond ensuring that lunches are packed and homework is completed, parents should consider initiating or continuing their college savings plans.
With the ever-increasing costs of higher education, starting your financial planning early can make the transition to college more manageable and less stressful.
For more comprehensive guidance tailored to your family’s needs, contact our team at Legacy Private Trust Company. We are here to assist you in securing a bright educational future for your children. Start your financial planning early and make the transition to college more manageable and less stressful.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
