Q: What’s the best way to save for college? –Planning Parent
A: Dear Planning:
Saving for college is a daunting task on every parent’s to-do list. Although we always recommend that families meet with a financial professional to devise a plan that considers the specifics of their financial profile, here are a few tips that will optimize your ability to contribute meaningfully to your child’s college education.
Low-risk savings often means low-returns, and with the cost of college going up 5% a year, relying on the performance of a low interest account will not produce the results you need, even if tax exempt.
Investing your college savings in an account geared toward long-term growth will pay much bigger returns. Look into 529 accounts, which are tax exempt, meaning you won’t pay tax on the income earned, and can become less conservative to minimize risk as your child nears college age.
Rethink putting assets in your child’s name, which are weighed more heavily in financial aid calculations. Be wary of custodial accounts as well because a portion of the earnings can be taxed at the parent’s highest tax bracket.
If you want to be smart about saving for college, start by sitting down with a Personal Family Lawyer®. A Personal Family Lawyer®, can walk you step by step through creating a college savings plan that supports your family’s education goals.