It’s no surprise that college is expensive. Today’s estimated in-state cost of attending University of Florida for four years totals close to $85,000. Given recent inflation rates, that cost could easily reach over $150,000 by the time a newborn is ready for higher education. Factor in private schools or out of state tuition, and the numbers are even more extreme. Though these figures may seem daunting, consider some of the following education savings tips to be better financially prepared when college rolls around.
Start Saving Early and Often
Setting up a monthly automated savings plan can be an easy way to start storing money away for that future need. Start with an amount you can afford and will stick to. Over time, consider increasing the amount you are saving when you receive a raise, bonus or pay off loans.
Compound interest can make or break a savings plan. An account making monthly contributions earning an average of 6% return on its investments annually could end up 64% larger than an account earning 1% over the course of 18 years. This extra boost could help you reach your goals sooner and more efficiently.
Grandparents and other family members are often interested in investing in your child’s future. Consider asking them to make a contribution to the child’s college savings account rather than adding to the never-ending pile of toys in the closet for birthdays or holidays.
Consider Tax Efficient Vehicles
With 529 Savings Plans, Prepaid plans, Coverdell Education Savings Accounts, and Unified Transfer to Minor Accounts (UTMA), there is certainly no shortage of options when saving for higher education. Two of the most popular options in Florida are a 529 Savings Plan, or a Prepaid Plan.
- 529 Savings Plan – These plans allow you to invest money in mutual fund style investments to be used tax-free to pay a wide array of college expenses. This can include but is not limited to tuition, books, fees, room and board, computers and even some K-12 expenses.
- Prepaid Plan – This type of plan is a guarantee from the state to cover certain expenses in the future at today’s costs. These plans are designed to cover the beneficiary’s tuition, but a dorm package can be added.
Both of these plans offer flexibility when the time comes to use the funds, including the ability to utilize the funds for more than one of your children.
Determining which option is best for you can be difficult, but you don’t have to make the decision alone. Work with a financial advisor to plan for this goal and many others.