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Planning For College Without Going Broke

July 06, 2017
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Planning for College Without Going Broke


Paying for college is one of the largest expense you will have in your life.  A four-year degree can cost as much as $250,000.  Most parents are wondering, “How I am ever going to pay for this?  I have three kids.  That’s $750,000.  The good news is that through proper planning you can pay for college without going broke.

              There are many types of accounts that you could save your money in, one of the most popular I see often is the 529 plan.  The main benefit to this type of plan is the that the money grows tax free and is nontaxable if used for college.  In some cases, t could actually hurt you if the money is not used for college. All the earnings on this account are taxed at your current bracket and a 10% penalty will be imposed by the IRS.  529 plans are usually invested in mutual funds so they are also subject to market fluctuations, depending on timing this could be a positive or a negative when it comes time to use the money for college.

A colleague of mine experienced a different type of drawback to owning a 529 plan when his son received a full scholarship but it would not pay a penny until he spent down his 529.  Clearly, there are pros and cons to setting up a 529 plan, considering these factors and careful planning should be done before just jumping in because it worked out for someone else!

              I would like to introduce another option to be considered, I would say it’s one of the most underutilized and misunderstood asset class’s out there. Today’s cash value life Insurance has many new and innovative living benefits, along with a tax efficient strategy to accumulate money that can be used to fund College or your retirement if plans change!

The cash value grows tax deferred and if structured and utilized properly the cash can be taken out tax free from the policy.  Life insurance is also one of the few assets not counted FAFSA form

              Choosing a college, don’t automatically assume that State schools are going to be cheaper.  In many cases, a private school actually can cost less than a state school given the same financial need and curriculum of the student.  How can this be?  Private schools usually have large endowments and fewer students, meaning they can offer more aid, either merit or needs based regardless of the parent’s income and assets.

              In closing, the sooner you start planning and saving for your child the better.  If your child is already in their high school years there are still some planning strategies you can use to help maximize your child’s financial future.

To learn more about college planning and explore your options contact, Dawn Santoriello, President DS Financial Strategies.  215-660-0288