With the US Supreme Court set to take up a second case on how to handle student debt relief, the cost to go get a higher education will still exist for the foreseeable future. Here are some great tips you might want to consider as you begin planning your 2023 personal finance calendar.
One of my favorite personal finance writers, Jonathan Pond, has some great info from his Ponderings newsletter:
Don’t try to save all of it. Don’t even think about trying to save every cent that it’s going to cost to educate your abecedarian. It will almost certainly require putting aside more money than you can afford. If you set your college savings goal too high, you may become discouraged and not save at all. Instead, plan on setting aside an amount that you can reasonably afford – perhaps enough to cover one-third of the cost.
Keep saving for retirement. Don’t begin saving for college unless you can at the same time keep up with your retirement plan contributions, including an IRA. In other words, don’t reduce your retirement savings in order to save for college. While it’s great to get a head start on tuition costs, it’s more important (and more financially advantageous) to put money away in retirement plans.
529 plans are preferable. Unless the child is very near college age, a 529 college savings plan is probably the best savings alternative. It is certainly the most tax advantageous. Choose carefully. There are some wonderful 529 plans, but there are also some stinkers that assess high fees and provide lackluster investment choices. Every state offers at least one plan, and your own state’s plan may – or may not – be a good choice. If you’re comfortable making your own decision, select a 529 plan on your own. Some online sites can help identify the top choices. This will probably save you money compared with asking a financial advisor for help.
Opt for age-based investing. Unless you’d really prefer to select your own investments in the plan and otherwise move money around, choose instead the “age-based” 529 plan investment alternative(s). The age-based option will automatically but gradually change the investment mix as the pupil nears college age. The younger the child, the higher the percentage of money in the plan that will be invested in stocks. As the child nears college age, the percentage allocated to stocks will gradually be reduced, which makes a lot of sense because the last thing you want is to lose a lot of money from a stock market tumble just before tuition bills arrive. The age-based approach takes the worry out of having to ride herd on the investments, one less matter on your financial worry list.
I hope the above helps if saving for college happens to be on the horizon for you, or you and your family!