Tuition has continued to increase. Americans have amassed about $1 trillion in student debt alone and at the current rate it will definitely rise in the coming years.
Speaking to CNBC, Melissa Sotudeh, a certified financial planner and wealth advisor at Halpern Financial in Ashburn, Virginia, described college as similar to buying a car before but now "it's like buying a house." She is the author of the e-book "Find Your Financial Safety School."
The publication also shared the story of Frank and Debbie Astorino, who used a combination of 529 college savings plans and gift trust accounts to pay for the higher education of their four children. Frank is a certified financial planner as well as president of The Astorino Financial Group and he shared the three strategies that parents can use to achieve a $1 million college fund.
529 College Savings Plans
A 529 plan is an educational savings plan that is operated by a state or educational institution. It is intended to help families save money for future college costs.
There are two types of 529 plans: the savings plan and the prepaid plan. The former works the same as a 401K or IRA which invests contributions to mutual funds. The latter allows families to pay all or part of the costs of an in-state public college education beforehand.
Gift Trusts
The Astorino Financial Group president also set up gift trusts, which can be Uniform Gift to Minors Act (UGMA) or Uniform Trust to Minors Act (UTMA) accounts, for his children. It allows parents, grandparents and other people to give children financial gifts without gift taxes for up to a specific limit without the need for hiring an attorney to set up the fund.
Roth IRAs
Astorino also made sure that the money that his children earned from summer jobs go directly into a Roth IRA. This type of account allows kids to contribute up to $5,500. One catch is that getting the money before reaching the age of 59 and a half would require the owner to pay a 10 percent early distribution penalty on the amount of money that they take out.
