I have two kids, 10 and 12, and I'm not sure how much I should be saving annually to be ready for when they go to college.
Young families face a huge challenge to save enough to pay for their children’s higher education expenses. College is expensive and will become even more so in the future. When it comes to qualifying for financial aid many families have too much income, but unfortunately as these same families are not wealthy enough to pay for the rising costs of tuition, room and board, and books, many students are now completing college with a sizable student loan debt.
There are many ways to save for College, and there is not a “one-size-fits-all” approach. Conventional wisdom always suggests it is better to maximize one’s own retirement prior to saving for a child’s college. If there are dollars left over to save for higher education there are various options, for example: an Educational IRA; an Educational Trust; a Custodial UGMA; a 529 Plan, or even an Annuity or Insurance policy.
To answer this question correctly an advisor would have to know the saver’s full financial information, their ages and goals of themselves and their beneficiaries, prior to choosing the savings amount needed and the option best suited to their family situation. For example a 529 plan can be a good choice for a wealthy parent or grandparent as participant for funds to grow tax free. To optimize the benefit of this non-taxable growth, a 529 plan can be initially funded with 5 years of gifting allowance which would currently be $65,000.00, and an annual gifting thereafter. The average parent who does not have access to an immediate $65,000 has to save monthly. Unfortunately financial calculators show with the current inflation figures and interest rates, savings of $100 per month in a child’s 529 plan utilizing an age-based strategy from birth to college-age may not amass enough even to pay for the first year’s expenses.
** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above
There are so many factors to determine if you are saving "enough-" type and cost of projected college of attendence (state, community, Ivy League, etc), interest rate factors on investments, age of children, how many years to attend, etc. The best recommendation is to seek out a qualified Certified Financial Planner(tm) in your area to assist you in the necessary steps to establish a structured college savings program that doesn't hamper your present quality of life while preparing for the future. I caution you to not sacrifice your retirement savings plan and your establishment of an emergency fund in your endeavor to get ready for your childrens future college needs.
We recommend that you save 2 years of state university room, board and tuition in a 529 plan. That gives you tax free growth, and a lot of flexibility. www.Savingforcollege.com is a great website to help you understand 529 plans, the benefits and which one is best for you. We work primarily with clients in Ohio and Indiana, and both states have excellent 529 plans. Just don't let an advisor 'sell' you one of these. Enroll in the self directed 529 for Ohio or Indiana.
I think the answers from Carolyn, Carol, and Neal are all excellent and provide some great tips. Let me take a different spin as the parent of one college grad (2010) and two current college students. Our experience has shown us a couple of things.
First private universities can actually be a better deal than a state school, especially if your child is good student with solid test scores. This has been our experience with both kids who have gone this route. This was verified by our experience with our other child who attends a state school.
Second financial aid packages from seemingly similar schools can vary widely. We were amazed at this with our oldest.