It would be nice if parents didn't have to think about college until the day they drive their little duckling off (and weep the entire way home), wouldn't it? Nice, but here's the truth: according to the College Board, a moderate budget at a private college averaged $43,289 for the 2012-13 school year. Got that? That's tuition for a YEAR. Think you don't have to think about college because your kiddo is just an itty bitty baby? Guess again.
Not wanting to think about college -- because aww, that's my widdle baby -- is just one of the many huge mistakes parents make every day when it comes to saving for college. And when it comes time to pay the piper, these mistakes can put a major hurting on your life.
Not sure if you're making one of the biggies? Here's how to tell:
1. Waiting too long. Let's face it, college does not sneak up on you. You have 18 years (give or take) to set aside money for that little one, so why delay? Parents should start investigating savings options as soon as they possibly can -- even during pregnancy. According to a recent study, families who begin saving for college through a 529 savings account when their child is young will pay half as much as those who end up borrowing.
2. Not maximizing your savings. I can't tell you whether it's better to use a 529 plan or a custodial account for your child's college. I can tell you that putting loose change in a jar is only going to get you so far. It's not fun to sit down and study savings options, but the interest you can earn is worth the hassle.
3. Saving in your child's name. Putting money in your child's name might sound like a great way to protect yourself from a tax hit, and hey, the money is FOR your child, right? Actually, college financial aid is based on a child's assets too. A 529 plan, on the other hand, is treated as a parent asset and only 5.64 percent of the account value is applied toward a family's expected contribution to tuition in a financial aid package. A child's assets, on the other hand, are assessed at 20 percent!
4. Closing the 529 when a kid goes to college. Maybe this is common sense to some folks, but a financial advisor recently told me a lot of parents make the mistake of stopping their 529 contributions when their kids start their freshman year. Turns out you should keep them going -- because that tax-free money can be used in semesters to come!
What is your best tip for college savings success?
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