It’s every parent’s dream to be able to send their children to a reputable college where they can earn a degree to prepare them for their futures. Though planning for their college education might be among the most expensive investments you’ll make, you may be able to decrease these costs by making these smart choices and decisions that begin with proper planning. To achieve this, college financial planning experts share these common mistakes most parents are still doing that prove to be costly in the end.
Not Saving Early
College costs have steadily increased in the past few years, rising by as much as 100 percent in just a span of 10 years. This can also be traced back to the effects of inflation, which contributes to the increase of college costs by as much as 5 or 6 percent annually; hence, the earlier you start depositing into your 529 college plan, the bigger growth your money will see over time.
Despite the fact that many parents believe that having a college education is essential for their children to achieve their life goals, only a percentage of parents are able to save up to safeguard their children’s futures. Some don’t even know how to calculate and plan for their children’s college education. This might seem too early a time for you to invest on your children’s future, but starting to save up early will always pay off in the end. In fact, those who had been able to draft a specific plan for their child’s college fund had successfully saved 83 percent more money than others.
401(k) and 529 Distributions
In the case of 401(k) plans, taking a loan out of this plan in paying for your child’s education can lead to your disqualification from company matching funds. Moreover, you’ll need to repay your loan within 60 days upon leaving your company or a layoff, otherwise the outstanding loan balance will then be considered income, which consequently affects your Expected Family Contribution.
Meanwhile, using your 529 earnings in paying for your children’s education could only work against you, for it can be grounds for your disqualification for the American Opportunity Credit. To retain this opportunity, it’s advised not to tap into your 529 plans until you have paid the first $4,000 in qualified education expenses like tuition and textbooks.
Taking note of these mistakes can also help you in avoiding further costs that could have been prevented in the first place. Additionally, college funding specialists like John McDonough from the Studemont Group College Funding Solutions, LLC can aid parents by providing advice about proper financial planning for college.
4 Costly Mistakes Parents Make When Saving for College, US News & World Report
10 Financial Mistakes Too Many Parents Make, The Simple Dollar