Saving for college is often a top priority for many parents, but many drastically underestimate how much it costs. Without an accurate sense of the cost, many parents end up undersaving. Let’s dig into the potential costs and explore how much you should consider saving for college expenses.
Cost of College
Determining the exact cost of education can be difficult due to the numerous variables that affect the price. Will they go in state or out of state? Will they go public or private? Do they have any scholarships? These are some of many variables that go into the price.
While it may be unrealistic to pinpoint the exact cost for your child, looking at the cost for colleges they might attend can help you make an educated guess at how much to save.
For instance, the average cost for in-state students in Illinois is $26,300. The total cost for 4 years would be roughly $105,200. This can give you a rough estimate of how much college will cost.
How Much to Save
With multiple financial goals to juggle, many parents don’t plan to pay 100% of their kids’ college costs. Once you have an idea of how much you’ll cover, we can do some math to determine your saving options.
Let’s consider a scenario where you aim to fully pay for your children’s education. Using the average cost of attendance in Illinois, we can determine the monthly savings based on the age at which you begin savings:
The earlier you start saving for your child’s college education, the more time you have for those savings to grow. By starting to save for your child’s college education as soon as they are born and maintaining consistent contributions, you would need to contribute approximately $360 per month over a span of 18 years to achieve the goal of paying in full.
Now that we have established the importance of starting early, let’s look at where to save for your child’s education expenses.
Where To Save
A 529 plan is often the right choice.
A 529 savings plan is similar to a Roth IRA in that it allows you to invest after-tax dollars. Your money grows tax-deferred and can be withdrawn tax-free to pay for qualified education expenses, such as tuition, fees, room and board, and books.
Depending on your state of residence, you may be eligible for a state income tax deduction for contributions to a 529 plan. In Illinois, contributions of up to $10,000 per year ($20,000 for married couples filing jointly) are tax-deductible.
One of the main concerns is that your child may not attend college. With 529 plans, you have the option to change beneficiaries. This implies that if your child chooses not to go to college, you can designate another family member, such as a sibling, first cousin, grandparent, aunt, uncle, or even yourself, as the new beneficiary.
In addition, beneficiaries of 529 plans can roll over up to $35,000 into a Roth IRA. This can help people get a head start on saving for retirement.
It is undeniable that the thought of paying for college can be overwhelming. However, by taking action now and implementing a consistent savings plan, you can set your child on the path to a debt-free college education and provide them with a strong foundation for their future. Please do not hesitate to contact us if you need assistance with your college savings plan.
Disclaimers and Sources:
Stock investing includes risks, including fluctuating prices and loss or principal. This information is not intended to provide specific advice or recommendations about any stock nor is it intended to be a recommendation to buy, sell or hold any stock investment. We suggest speaking with your financial professional about your situation prior to investing.
Prior to investing in 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.