Preparing Your Child’s Future: College Saving Plan

Your baby’s first word, step, and birthday are important milestones that can quickly remind you that they are growing up. Whether you are having a baby or are a proud parent of a bouncing bundle of joy, you are most likely concerned for their future and the measures that need to be taken to ensure they are prepared. Unlike planning for their first day of school or their 13th birthday party, saving for college takes time.

So, how soon should you start saving for your kids’ college education? The earlier the better, even if the amount you save at first is modest.

First Things First: Your Retirement

Although your children’s future is important, your financial future can greatly impact theirs. Many experts suggest tackling your retirement options first, because  there are several ways to pay for college, but in most cases you have a two faced coin approach to retirement when you have no savings: continue to work or collect social security. Let’s face it, retirement can’t be paid with scholarships and grants.

Furthermore, you want your children to have a future. Would you really want to be a burden to them financially because your own future wasn’t squared away as well?

Their Future

Every little bit helps. With college costs rising at twice the rate of inflation, it’s important not only to set money aside but to invest it with an eye toward keeping pace with education inflation.

According to the College Board, the average cost of tuition and fees for the 2014–2015 school year was $31,231 at private colleges, $9,139 for state residents at public colleges, and $22,958 for out-of-state residents attending public universities. So let’s put that into perspective:

Say you’ve got young children and can only invest $100 per month to start with. Assuming an annual investment return of 6%, your savings may have grown to $7,170.38 after five years.*

By then, you may be able to bump up your education savings to $200 a month. Assuming the same 6% rate of return each year, you may have $21,511.14 five years later. By then, you may be doing a little better financially and will be able to double your monthly contribution again, to $400. At that rate, you may have more than $88,500 10 years later—which could pay a significant chunk of your child’s college costs.*

*This example is for illustrative purposes only and the return is not indicative of any actual investment. Actual investment results may vary.

Choosing a Savings Plan

There are several options you can take to provide for your children’s future. In many states, there are 529 savings plans that provide tax benefits* and can be really beneficial if you reside in a state with income tax.  Before investing  in a 529 plan, investors should carefully consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 plan. Here are is a list of other options:

  • Coverdell education savings accounts
  • Roth IRAs
  • UTMAs (also known as custodial accounts)
  • Trusts

*We encourage you to consult with your tax advisor to discuss any and all tax-related strategies, options and deductions.  Always contact a professional regarding any legal or tax advice.

Planning for your children’s high education can be overwhelming with so many things to factor in such as inflation, retirement plans, and other savings. The key—just as it is with achieving any long-term financial plan—is to get started. If you are unsure where to begin, financial advisors can help you with education planning.

*Before investing in a 529 plan, investors should carefully consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 plan.


The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG, LLC, to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2015 FMG Suite.


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