College costs are rising and the dream of realizing a college tuition free future is still too far. Just to be sure, parents are still planning to save for their kids' college education no matter what the politicians say.
For the academic year 2015-2016 alone, the cost of college which includes tuition, school fees, dorms and more would need about $20,000 saved for every year. That means you need to have $80,000 to $100,000 saved for a four year course. And that is just for a public four year university course. For private colleges, it'd cost twice as much or more. According to the Nerd Wallet, it can even cost $60,000 per year for elite schools.
Do not be overwhelmed. You can still save up for your child's college education. Here are three options you can choose from.
1. Roth IRA - The Roth IRA is a tax-advantaged individual retirement account. It can be used for college savings too. Contributions can be withdrawn and it is a flexible choice for most families. However, you can only withdraw it after age 59.5. Withdrawing before means it will be taxed as income and a penalty fee.
2. A 529 College Savings Plan - These are tax-advantaged plans offered by states to help families save for college costs. It has excellent tax benefits but is not flexible unlike some who can use the money for other needs aside from college costs. Some states offer a state tax deduction for contributions but there are limits on the amount you can contribute per year.
3. A Taxable Investment Account - This can be cash in the bank. It is the most flexible option but the least desirable from a tax standpoint. You can use this to fund your child's college tuition and other financial goals. And there is no contribution limit.
While these three are great options you an use to fund for your kid's college education, it is still best to work with a financial planner that specializes in college planning to help you with your financial goals and ultimately, retirement plans, too.
