Save for College
If you dream of sending your little one off to college someday, you better start saving now.
-If you dream of sending your little one off to college someday, you better start saving now. -You know, the biggest mistake is not starting early enough. The earlier you can start, the better. -Stacy Francis, president of Francis Financial in New York, says parents should start saving for their child's college education as soon as the child is born, but don't just put the money directly in your child's name. -When it comes to filling out the FAFSA on applying for financial aid, that money sitting in your child's name is going to be held directly against their chances of getting any type of financial aid. -Instead, set up a 529 Plan. -The 529 Plan is a special type of investment vehicle that can be used for college savings. And what's great about it is that you can use that money for any accredited college. -529 Plans are easy to open, and every state has one. But not all plans are created equal. When choosing a 529 Plan, Stacy says do your research. And don't just automatically go with your state's plan. Some states offer a tax deduction for contributions you make to the plan, while others do not. And different plans offer different investment options. -Stacy says to start by going to the website www.savingforcollege.com. The site ranks all the different 529 Plans out there, and features like a college cost calculator, tutorials, even a state by state search tool to let you explore all your options. -Kathryn Sachs and her husband opened a 529 Plan for their son, Dylan, when he was born. -For us, it was a no-brainer to do it because, you know, with the cost of education being what it is these days, we figured it was better to start sooner than later. -Since they plan to have a second child, they started another college fund with an investment firm at the same time. When Caroline was born three years later, they made her the beneficiary of the second account. -She was actually given a head start because her college savings plan actually started three years prior to her actually even being born. -Kathryn and her husband have contributions to their children's college funds taken automatically from their checking account each month. -Some parents, they say, you know, "We'll just do it at the end of the year." But what happens for a lot of them is at the end of the year, they look at their finances, especially if it's around holiday season, and they don't have the money. So, if you do it ongoing, automatic direct deposit from your paycheck, or you could have it directly from your checking or savings account, it's gonna be a lot less painful. -But be careful when choosing how much to contribute. -Deciding how much is really one of the most difficult decisions. It's deciding along with it. "Do I wanna afford a four-year state school versus a four-year private college?" And then, also, you know, do you want your child to take loans? So, if they're having to choose between them retiring, and their child taking out student loans, it makes sense, actually, for their child to take out student loans. Don't put too much of your money away because you can't get that money back. So, put away what you're comfortable putting away that you don't need to live on, but don't try to put away the farm all at once, because if you need that cash, you're not gonna be able to access it. -The closer your child gets to college, the more conservative his college fund should become, with a greater percentage in bonds rather than stocks. But what do you do if it has already sustained big losses due to a down market? -You need to take a look at when you need the money. So, if your child is young, you know, 3, 5, 10, 12, even 13 years old, that's fine. You've got time for your 529 Plan to come back. However, if you have a child who is a little older, maybe 15, 16, 17, needing it in anywhere from one to three years, you can leave it as it is, and hope that within the next two to three years, that the market rebounds and you recoup those losses, or you can decide to make it more conservative, so that you know that at least, the money you do have in there is going to be there when you need it.