Planning for College | Redstone Federal Credit Union

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You've heard it time and time again: Start that college fund before the baby comes home from the hospital. The truth of the matter is, despite the unquestionable wisdom of this advice, very few parents actually follow it. You know the feeling: Young parents face far more pressing financial issues such as buying a house, paying off their own college loans, financing a car, and trying to make ends meet as family responsibilities grow.

So, if you're like most parents, with little or no college savings, don't despair. There are a number of steps you can take to get your children educated and to meet escalating tuition fees without having to give up your Saturday night out on the town or your annual trip to the beach.

Deciding on the best college-funding strategy to use requires a focus on how old your child is and how long it will be before he or she starts college. Your strategy should change and evolve as your child gets older.
What to consider

Here are the key considerations for developing your college funding strategy:

  • The cost. How much money do you need to come up with? Can you afford the school you have chosen? Have you taken inflation into account?
  • When you have to pay. When will your child start college?
  • Pre-funding the cost. Will you be investing now to pay costs later or will you wait until the end? What are your resources now? How much can you save each month for college? Where should you invest the money?
  • Sources of loans. If you need to, where will you be able to borrow money? How much can you borrow? How much should you borrow?
  • Financial aid. Will you qualify? How much money will you get? When should you apply for financial aid?
  • Consider other resources, such as earning more income (working overtime, spouse going back to work, etc.), having your child work, having your child attend a college with a co-op program, scholarships, ROTC programs or attending a military academy.
  • See the Putting It All Together worksheet. How much of the total college cost will come from each of the pieces above? How will you manage if there is a shortfall?

You should also consider your other savings goals when planning for your child’s college education. As long as it’s in line with your priorities and your financial plan, you should typically fund your tax-advantaged retirement plans before funding your college investment program. Your financial future is important and that should be your primary focus.

An Argument for Funding Your Retirement Plans First
Retirement Plans*College Investment Program
The investments you make toward most retirement plans are tax-advantaged.The investments you make toward most retirement plans are tax-advantaged.
The investments you make toward most retirement plans are tax-advantaged.The income earned in college funding accounts may be taxed currently (there are some exceptions such as Series EE and Series I Savings Bonds, Education Savings Accounts, and Qualified Tuition Programs).
Retirement plan assets are not typically considered assets when you apply for financial aid. This increases your chances of getting financial aid.Assets accumulated in college investment accounts may decrease the chances of getting financial aid.
Having your financial future funded gives you the confidence to help your children in many ways, not just helping them find ways to pay for college.If you fund college and you're not making progress on your own financial future, not only are you giving up tax benefits, you're putting your own financial future at risk.

*IRAs, 401(k) plans, 403(b) plans, Keoghs, etc.

Contributions to a Roth IRA are not tax deductible. The Roth IRA offers tax-deferred growth of your investments. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 1/2 may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

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