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Beginning to Think About College for Children
As you probably know, college is expensive. As you may not know, college costs are rising faster than inflation and almost no one is predicting that college costs are going to go down. As a result, you may want to start thinking about funding your children's college costs now. The sooner you start thinking (and hopefully saving) the easier it will be.
College Costs Today
According to the College Board, the annual costs (tuition, room, board, books, supplies, transportation, and other) of attending college for 2013-2014 were:
While many students qualify for scholarships and other forms of financial aid to bring these numbers down, you may also want to consider some of the other costs (travel, entertainment) that may add to these numbers.
College Costs Tomorrow
For the past several years, college costs have been increasing at a rate faster than the overall inflation rate. While it is impossible to know what will happen in the future, here is a chart that demonstrates what happens at annual increases of 4%.
And do not forget, these are just the annual costs; and if your child attends for four years, you must multiple by 4. As you can see, it will be expensive to send your child to college and even more expensive if you have more than one child. Fortunately, you have time to save and there are several ways that the income tax laws make saving easier.
Funding College Educations
For decades, parents have used custodial accounts to transfer funds to their minor children to help build assets for college costs. However, the 2001 tax law has enhanced the tax benefits of other types of asset ownership that should be considered. Coverdell Education Savings Accounts (Education IRAs) and Qualified Tuition Programs (Section 529 Plans) have become very attractive.
The Value of Starting Early
It can be very easy to put off starting to save for college, especially if your children are young. Yet, by starting early, even if it is just a small amount, you can make a large dent in what you will need. You can always increase the amount as you earn more, but time can be your ally.
Savings Accumulation Table
Assumes earning 5% and no income taxes.
Enabling your children to attend the college of their choice and get an education that will prepare them for a successful and productive life is one of the greatest gifts you can give. However, the costs of providing that college education can be very large. Starting earlier rather than later can make the process easier, especially with some of the tax benefits of Coverdell Education Savings Accounts and Section 529 Plans. Developing a college saving habit can provide your children with the funds they need and provide you with the satisfaction of knowing that you are doing the right thing.