1. Estimate the Total Cost of College: Predicting the future cost of college can be challenging. The Massachusetts Educational Financing Authority has a calculator on their website that estimates college expenses based on the year your child will start attending. While you can’t be sure exactly which type of college your child will chose, this is a good place to start. A link to the MEFA calculator is posted here.
2. Figure What Percentage to Fund: One key to saving for college, either for yourself, or for your children, is figuring out what percentage of the tuition cost you want to fund upfront. Given the current cost of a private four-year college, most people will need to take at least some loans. It’s also important not to jeopardize your retirement fund stretching to fund 100% of the cost. Loans for college are readily available, loans for retirement are not.
3. Back Into a Savings Goal: Once you establish what percentage of tuition you want to fund, back into a savings a goal that will get you to that number. For example, if you want to fund 50% of a $300,000 college education in 18 years, and you a assume a 6% return compounded annually, you'll need to save at least $405 per month to reach your goal, assuming you save the funds in a tax-sheltered account such as a 529 Plan or Coverdell ESA.
4. Choose A College Savings Vehicle: There are a few different vehicles you can use to save for a college education, such as a 529 Plan, Coverdell ESA, or an UTMA/UGMA Custodial Account. Each of these accounts has unique features. Savingforcollege.com has a great tool that allows you to compare the different college savings options. A link to the tool is posted here. Ideally you should review any decision regarding account type with a financial professional to ensure that you’re maximizing the potential benefit. https://www.savingforcollege.com/compare_savings_options/
5. Start Saving and Stay on Track: The final step is getting started! Once you have your plan in place, the best way to stick to it is to automate contributions to the account on a set schedule. When it comes time to invest the funds, each college savings vehicle may have unique investment options available, so be sure to consult a financial advisor if you have questions regarding any specific investment decisions.
This is a basic outline you can use to get started, but it is not personal financial advice. A comprehensive college savings strategy should be developed with help from a financial professional. Consult a financial advisor or tax professional prior to making any investment decisions or tax decisions.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
PLEASE NOTE: The information being provided is strictly a courtesy. When you link to any of the websites mentioned, we make no representation as to the completeness or accuracy of information provided at these websites.
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