Top 7 College Financial Planning Tips for Parents

May 15, 2015

College FundAs a parent, you carry the hefty responsibility of helping your child prepare for college, and let's face it—one of the greatest burdens of this process is to save enough money to cover tuition costs. Fortunately, with a bit of preparation and strategic planning you can successfully set aside enough money to support your child through their years of higher education.

Here are seven important tips that parents should use when they are putting together a financial plan for their child's college savings fund:

1. Consider Your Expected Family Contribution

The expected family contribution (EFC) is an estimate of your and your child's ability to contribute to the cost of higher education. It is used to help determine federal student aid eligibility. As you consider how much you can contribute, you should look for potential scholarships, financial aid assistance and other monetary resources that might be available outside of your college savings fund. Once you have a good understanding of outside financial resources available to you, this information can be used to estimate the amount of money that needs to be saved. This process will help you to establish your target savings goal.

2. Maximize Tax Benefits for College Costs

There are several generous tax breaks available to middle-class parents who are saving for college. These tax savings might be calculated into your tax return based on a tax credit or tax deduction, depending on your individual circumstances. You can save thousands of dollars in taxes by funding your Section 529 account or paying for college tuition. Talk with your accountant about two of the biggest tax breaks that are often overlooked: the Lifetime Learning Credit and the Hope Scholarship.

3. Stay Away from Your Retirement Savings

One of the biggest financial planning mistakes a parent can make is to tap into their retirement funds to pay for their child's education. You might be tempted to take a loan or distribution from your retirement plan in order to avoid student loans. Most of the time, this financial mistake is made between the ages of 40 and 60, which means that you have a very short amount of time to recover the depleted funds within your account. Borrowing against your retirement fund could actually postpone your retirement by five to 10 years.

4. Visit the Financial Aid Office on Campus

Many financial aid options are available for students, and you should talk with the college's financial aid office to learn more about funding that can be obtained to help pay for your child's education. When your child is touring a campus, consider scheduling a time to talk with an employee in the financial aid office. Request to be notified of any opportunities for financial support that the university itself may provide to students. Even the smallest amount helps to offset tuition costs.

5. Monitor Timelines of Your Investments

College savings accounts need to be used in a specific two- to four-year window, which means that you don't have the flexibility to ride out the changes that might occur in the investment markets. If you are saving for retirement, then you might consider higher-risk investments because you have plenty of time to ride through the ups and downs of the investment account. But college savings will need to be accessed in a shorter amount of time, which is why you should consider less volatile savings programs, such as Section 529 plans or age-based accounts.

6. Start Saving Early

Financial advisors will agree that saving early is the foundation to a successful college savings plan. If you procrastinate, it will become much more difficult to come up with the money that is needed to pay for your child's education. From the time that your child is born, one of the best things that you can do is set aside money each month for college savings.

7. Talk with a Financial Advisor

Instead of putting the college money into a basic savings account, you can leverage the money more effectively by talking with a financial advisor. Financial planning is designed to help you maximize your returns on the money that you are saving so that you can increase the amount of money that is available to pay for the costs of college.

Do you have questions about financial planning for your child's college savings? We invite you to contact us today, and we will gladly help you find a way to maximize your savings so that you can pay for your child's future education.