College savings can feel like an impossible task thanks to these three common myths; however, the truth is bound to lift your spirits and help you get started.
For many families, saving for college is such a daunting task that it ends up feeling more defeating than empowering. There are a handful of myths and misconceptions about the college savings process that can be even more immobilizing, preventing parents from ever getting started.
At Vance Wealth, it’s our mission to pay our experience forward, providing clarity where it’s needed most. That’s why we’re dispelling the most common myths about college savings, so you can start with the facts — and end up with a college savings plan that helps you achieve more for you and your children.
Our Most Important Piece of Advice
“The importance of starting early cannot be understated,” said Financial Advisor, John Vance, President & CEO of Vance Wealth in Santa Clarita. “The window is fairly short when it comes to college savings. Eighteen years can fly by compared to the decades you have to save for retirement.”
That’s why it’s so important to start early, even if you expect to save only a small portion of what you’ll ultimately need. In fact, that’s precisely why you need to be as proactive as possible when it comes to college savings.
Three Common Myths about the College Savings Process
While that may seem like fairly common-sense advice, there are a handful of misconceptions about the college savings process that tend to stop parents from ever getting started. To help you save proactively and wisely, here are the top three myths — as well as the truths that will set you on the right path.
- There’s no way I’ll save enough for college.
From the get-go, saving for college may feel like a losing battle simply because there’s no finite goal to hit. Until your child has decided on a college, place of residence and more, you won’t know the exact cost of your child’s college experience. For many families, that uncertainty feels impossible and like you’ll never have enough.
In reality, however, paying for college is rarely an all-or-nothing proposition. In fact, most parents end up taking a three-pronged approach: savings, financial aid or scholarships, and loans. You don’t need to save the full amount by graduation day, and realistically, that may not be the goal.
Instead, your goal may be to offset the need for loans as much as possible — because that’s absolutely a victory for you and your child. So when it comes to this first myth, the trick is to change the way you think about the purpose of your college savings and set the most proactive path forward possible.
- College will cost $500,000 by the time my child goes to college.
Again, saving for a moving target can be disheartening, especially since there are many variables to consider. The sticker price of a college, however, is not the true price. In fact, multiple variables affect the true out-of-pocket cost of a college experience, such as scholarships, grants and other financial aid.
“We’ve found that our clients’ kids actually receive some aid because many of the longstanding institutions have good-sized foundations,” John explained. “You never know what opportunities may offset the sticker price.”
Additionally, the money you save over time will grow, when planned appropriately. If you save $190 monthly for 18 years, for example, that $60,000 saved could eventually provide for a $100,000. *
Conversely, families who don’t plan and save from the beginning may end up paying more than the sticker price because they rely heavily on loans or pay entirely out of pocket. Therefore, the more and earlier you save, the less you pay in true cost.
- Saving will hurt my child’s chance of receiving financial aid.
When planned with foresight and strategy, a healthy savings may not have a dramatic impact on financial aid. In fact, there are ways to lessen the impact of a savings on your financial aid qualifications.
For example, a 529 college savings plan, which we discuss in more detail below, is only weighted at 5.6%, which has little impact on how parents’ income is interpreted by the Free Application for Federal Student Aid (FAFSA).
Additionally, there are more opportunities for financial support aside from need-based aid. In fact, most families are available for various types of aid regardless of need. A financial aid package may include: grants, loans, subsidized aid, unsubsidized aid and work study. The fact is your college savings isn’t your only option. It’s just a crucial starting point.
The 529 Plan: A College Savings Solution We Love
We hope, after reviewing these common myths about college savings, you’re ready to a take a proactive approach today for your kids’ future tomorrow, and one of the best places to start is with a 529 Plan.
This tax-advantaged savings account is dedicated to helping the student beneficiary cover tuition and other costs, such as mandatory fees, room and board, books and more. The money in your 529 will grow tax-deferred and will eventually be withdrawn tax-free. To ensure the money is used appropriately, parents are in control of the account and how it’s spent.
Additionally, the 529 Plan can now be used to save for secondary education, which makes it an excellent option to save for a private-school education. Parents can use the plan to pay for up to $15,000 a year.
The 529 plan allows the account holder to change the name of the beneficiary, to a sibling or grandchild, for example. This flexibility allows parents and grandparents to inspire a legacy of higher education that’s passed down for generations to come.
Are you ready to take a proactive start to your child’s or grandchild’s college education? We can help. To set up a consultation with one of our Wealth Advisors, please call Tara White, Administrative Assistant, at 888-775-0950.
About Vance Wealth:
Since 2003, Vance Wealth has served as a premier financial planning practice passionately committed to helping clients and families succeed at every step of their financial journey. Serving Southern California, the practice delivers innovative and comprehensive wealth management strategies precisely customized to each client’s goals and needs. Our mission is to help our clients and families succeed at every step of their financial journey, inspiring them to achieve more. We are committed to stand by their sides to help make the difficult decisions, celebrate life’s joys and be a trusted partner for every moment in between. To learn more, call 661-775-0950, email [email protected] or visit VanceWealth.com. To keep up with more exciting news, follow @VanceWealth on Facebook.
*This is a hypothetical example meant for illustrative purposes only and is not meant to portray the performance of any specific investment.
The information contained in this material does not purport to be a complete description of the securities, markets, or developments referred to in this material, and it does not constitute a recommendation. Any opinions are those of Vance Wealth and not necessarily those of Raymond James. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.
Rules and laws governing 529 plans are varied and subject to change. As with other investments, there are generally fees and expenses associated with participating in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plans. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state.
Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s officially statement, and should be read carefully before investing.