What is the Best Way to Save for College?

As long as you start early or have enough income to pay for college, it doesn’t matter how you go about it, right? No! The method you choose or account type can have a huge impact on your out of pocket costs. Below is a comparison of four different ways to handle college costs.

4 Ways to Pay for College 1. Section 529 Plans

The money contributed to these accounts generally grows tax-free if the funds are used for college expenses including tuition, fees, books and room and board for many students.

2. Investment Savings Account

The earnings on these non-retirement accounts are typically taxable, but there is more flexibility because the money does not have to be used towards college expenses.

3. Paying Once School Starts

If you have a high income you may not save for college because you feel you can just write a check when the time comes.

4. Student Loans

You might borrow to pay for college because you find it difficult to cover the entire cost or choose to put off saving and run out of time. Also, maybe your child having loans and some ‘skin’ in the game is not such a bad thing.

Still not sure which option is right for you? Assuming four years of college will cost $100,000, here is what you can expect to pay:

In summary, it could cost you more than 2.5 times as much money to wait and take student loans for college versus saving for 18 years in a 529 plan!

It is also important to note that money withdrawn from 529 plans that is not used for college expenses is generally subject to income taxes and a 10% penalty. Further, state tax deductions taken for 529 plan contributions may be recaptured on amounts not used for college. While a 529 plan can result in lower out of pocket expenses, you must consider which savings option is best for you and your financial situation.

What is the Best Way to Save for College? appeared on http://rodgers-associates.com/blog/

About the author

Michael Helveston, CFP®, CRPC®

Mike Helveston, CFP®, CRPC® is Director of Adviser Services at Rodgers & Associates. He manages the team of advisers and is responsible for maintaining the firm’s financial planning process. In addition, he provides comprehensive tax, estate and investment planning advice to guide our high-net-worth clients toward their financial goals. Mike joined Rodgers & Associates in 2007 after starting in the profession over 15 years ago with Vanguard.

Mike is a contributor to Forbes, has been quoted in the Wall Street Journal and has also appeared on television and radio discussing various financial planning issues.

Mike has served the community as a volunteer mortgage counselor with Tabor Community Services, a student financial literacy volunteer for Junior Achievement and as a mentor through Bridge of Hope. His hobbies include running, golfing with friends, listening to music and watching professional sports. He resides in Downingtown, PA with his wife and three children.

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