Saving for College

Saving for college is a major financial commitment and it’s important to make it part of your overall financial plan. While you might not need to cover the entire cost, thanks to scholarships, grants, and other resources, careful planning is key.

Estimating the Current Cost of College

Begin by estimating future college expenses using current data from college websites. A great resource is BigFuture, which provides detailed breakdowns of costs for different schools, including:

In-state and out-of-state tuition
Average net price (after grants and scholarships) based on household income
Average financial aid packages
Additional expenses like housing, books, and supplies

Adjust Costs for Inflation

Once you know the current costs, you can use a projection tool to estimate future expenses. The Vanguard College Cost Projector is a helpful tool. By entering the number of years until your child starts college, how long they’ll be in school, the estimated rate of cost increase (around 5% per year since 2000), and the current college costs, you can get a good estimate of what you’ll need to save. You can input a value for the current college cost or use the “lookup cost” feature to model the cost of a particular college or the average cost by category of school.

Setting A Goal

With future costs in mind, it’s important to set a clear savings goal. Saving 100% of estimated future college expenses isn’t the only option. Many families aim to cover a portion of the total cost, such as 50%, while planning for the rest to come from financial aid, scholarships, grants, or student loans.

Use a tool like the Vanguard College Savings Planner to calculate how much you need to contribute monthly or annually to meet your savings goal. You can also use it to estimate how much money will be available to cover education costs based on a savings plan that fits into your current budget. The earlier you start saving, the more time you will have to make any adjustments needed to your savings plan so that you can achieve your goal.

Choosing the Right Savings Vehicles

Once you’ve set your savings target, the next step is choosing the right savings vehicles. There are several options, each with its own characteristics , such as contribution limits, income limits, and tax advantages. Common options include:

529 Plans: Our “Go-To” College Savings Tool

For many families, 529 plans are the top choice for saving for college. If you’re new to 529s, Saving for College offers a great primer titled “What Is a 529 Plan?“.

Here are a few reasons why 529s stand out:

Tax Benefits: Contributions grow tax-free, and withdrawals are tax-free when used for qualified education expenses.

Contribution Limits: Generous contribution limits that vary by state, but could exceed $400,000 per beneficiary.
State Tax Incentives: Depending on your state, contributions may be eligible for a state tax deduction or credit.
Flexible Usage: Covers education-related expenses, K-12 tuition, apprenticeship programs, and even up to $10,000 in student loan repayments.

Gifting with 529 Plans

Contributing to a 529 plan is an easy and impactful way to help fund a child’s education. Two of the largest 529 account providers, Fidelity and Vanguard, have convenient online gifting platforms. Fidelity allows you to create a personalized gift page and Vanguard provides a UGift code . You can share these online gifting pages with family and friends, making it simple for them to contribute. Other 529 plans offer similar features, making it easier than ever to give the gift of education.

Who Should Own the 529 Account – Parent or Grandparent?

With recent changes, it is now more advantageous for a parent to be the owner of the 529 account, and the grandparents to gift to the plan.

Managing Your 529 Investments

We actively manage your 529 investments to help you reach your savings goals. The key to investing is taking a proactive approach. Oftentimes, simply following the 529 age-based investment allocation approach is not the best course of action. For example, around 2008 we had to allocate more money to cash to avoid the large losses as our clients were making tuition payments. If the account was in an age-based cookie cutter portfolio, the money would not have been there for tuition. It is not just the client’s age, but also where the market is in the bull/bear market cycle. The value of the market can tip you off as to how big the losses could be in a downturn. It is not perfect but it is a guide. Alternatively, your child may be nearing college but you can remain aggressive because the bear market already happened and market values are attractive. We write about the Market Valuation quarterly. Here is our latest.

Need Help?

Bartley Financial is built around a client-first ethos. We are as committed to exhibiting high levels of professionalism as we are to building relationships with clients built on trust and mutual respect. That’s why we hold ourselves to a fiduciary standard. It’s also why we offer a transparent, fee-only compensation structure so that our clients never need to be concerned about a conflict of interest.

Bartley Financial has an experienced team of CPAs and CFPs® (Certified Financial Planners®) dedicated to helping clients manage their investment portfolios, plan for retirement, strategize taxes, or execute any other initiatives in pursuit of optimum financial health and minimal financial stress. From our offices in Andover, MA, and Bedford, NH, we work to ease clients’ financial concerns, strengthen their portfolios, and assuage their worry that they don’t know what they don’t know.

Contact us today to begin a relationship with a team of knowledgeable, trustworthy professionals who put their clients first.

By Phillip Kashin
Phillip Kashin is a dedicated Paraplanner, bringing genuine enthusiasm to the team at Bartley Financial. As a Candidate for CFP® Certification, Phillip is committed to continually enhancing his skills and knowledge to serve our clients better.