Being able to afford that college education is difficult for all parents. According to the College Board, the moderate college budget for a year in an undergraduate program in an in-state public college for the 2018-19 academic year is $25,890 and public out-of-state is $41,950. A moderate budget at a private college averaged $52,500. If current trends remain consistent, educational costs could potentially rise by 5% annually. In the future, effective saving strategies for college are only going to become more important.
Bear in mind that all college savings plans, or strategies, are not created equal. The best plans offer lower expenses and special tax advantages to pay for college tuition. A smart college savings plan should hide your assets, helping you qualify for financial aid. Structuring a tax-efficient plan is important and can increase the potential of accumulating more money over time (as opposed to a taxable college savings option). There aren’t many plans available that allow you to secure your child’s future in the event of your death, the death of your spouse or a stock market collapse that affects potential investments.
Saving for your child’s college education requires a long-term commitment and sizable monthly or annual contribution to a plan or policy. In the same manner that you save for retirement, the earlier you start your plan, the better.
The right college savings plan, structured in a tax-efficient manner and constructed during a child’s younger years, will allow for college education choices to be determined by their grades and SAT or ACT scores, as opposed to which options are most affordable, or the scholarships they receive. The following are three of the most viable and popular plans:
1. 529 College Savings Plan
2. Cash Value Life Insurance Based College Savings Plan
3. Bank CD or Money Market Account
529 College Savings Plan
The 529 plan may be viable for children up until 12 or 13 years old because of the stock market investment component. These plans offer a few good tax advantages that no other plan offers except one that is cash value life insurance based. You would be able to learn more and compare the two most popular college savings options on the table below.
Cash Value Life Insurance Based College Savings Plan
Cash value life insurance includes whole life insurance and indexed universal life. These savings plans provide almost all of the advantages that 529 plans do while also eliminating their disadvantages. Cash value life insurance plan has it owned drawback – it only work well if you start very early while the child is very young unless you need to hide your money later on for the financial aid purpose.