- Private schools – Up 157%
- Out-of-state tuition and fees – Up 194%
- In-state tuition and fees – Up 237%
Those figures are in comparison to a 52.7% increase in the consumer price index over the same period. Reading statistics like this makes parents worry about the ability to put money back for these rising tuition costs. To help ease some of the stress associated with saving for college, I want to walk you through how to put money back, without breaking your wallet.
There are several finance tools available to parents who want to help cover the costs of their children’s education. Depending upon how early parents start investing in these tools, these savings accounts can help parents steadily build a nest egg that their children can tap once it is time to head off to college.
Let’s look at my personal favorite, and one of the more popular college savings vehicles, the 529 plan. This program is offered throughout the country and allows parents to invest after-tax dollars today that can grow on a tax-deferred basis over time. Withdrawals used to pay for qualified education expenses can be made on a tax-free basis in most cases. Even better, some states provide state income tax deductions for residents who invest in their 529 plans.
Let’s look at Indiana for example, which came in at the best overall plan in the country according to www.savingforcollege.com. Indiana residents can claim a 20% tax credit on up to $5,000 per year in contributions to an Indiana 529 plan (maximum yearly credit is $1,000).
How can you get started saving for college?
When my wife and I found out we were having our first child, saving for her college became a priority. When filing our taxes, we learned that we would now be receiving a $1,000 Federal Child Tax Credit, just for having her. This isn’t money we used to get at tax time, so for us, it was the perfect time to save it in a 529 plan, instead of buying something like a new big screen TV. (wants vs. needs, people!)
As mentioned above, when investing in Indiana’s 529 program, you get a 20% state tax credit the following year, on up to $5,000 per year in contributions. Let’s just say we ONLY put that $1,000 child tax credit away in the 529 savings account, and did the same for the next 18 years, until our daughter goes to college. Here is what it would look like WITHOUT earning any interest:
As you can see, even without interest, we will have put back more than $20,000, without even touching our pocket book. Using money the government gives you for having a child, can be a great way to start savings for your child’s college tuition. Now, let’s see what it looks like if we put some of our OWN money into the plan, with the addition of the Child Tax Credit.
If I ask most parents if they could save $50,000 - $75,000 to send their kids to college, they tell me the same response, over and over, “You are crazy, Ben!” If I ask them if they could put back $20-$50 a week to help send their kids to college, they tell me that is a little more reasonable and maybe doable, but it won’t add up to anything!
Let’s apply the $20 a week scenario, added along with using the Child Tax Credit that you may receive from the federal government. Based on this scenario, WITHOUT interest earned, you would be able to put back over $40,000!
Now, let’s look at what saving $50 a week, plus the annual Child Tax Credit, would add up to.
Can you believe that? Just $50 a week out of your pocket, combined with your annual $1,000 Child Tax Credit can help you put back more than $75,000, without including interest earned on your principal investment!
So, you may be asking, “How do I find this $50 a week you are referencing, Ben?” For my wife and me, we had to find where we were spending our money on a regular basis. If we went out to eat at a nice restaurant once a week, it usually ended up being around $50 or more. So, we had to ask, “Do we want to go to a nice restaurant once a week, or send our kids to college, and limit the debt they will need to take on?” For us, the answer was simple. You will just need to look at your daily spending
, work from a budget
, and you too can start to turn that dream of sending your child to college into a reality.
Ben is responsible for enhancing Old National financial literacy initiatives by partnering with schools, colleges, universities, businesses, nonprofits and government agencies. In 2017, Ben was recognized by the National Financial Educators Council (NFEC) with its coveted Financial Education Instructor
of the Year Award.
This content is not intended to provide legal, tax, accounting, financial or investment advice or indicate the suitability of any product or service for your unique circumstances. You are encouraged to consult with a qualified legal, tax, accounting, financial or investment professional based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
If you are like most Americans that have children, you may be wondering if you will ever be able to put enough money back for your kids’ college education. As you can guess, the cost of college tuition and fees are not on the decline. According to a September 2017 article in U.S. News & World Report, over the last 20 years, the average tuition and fees increased as follows: