College Costs Now Can Exceed $90k…That’s Per Year!

Below I will share some thoughts for consideration. One needs to ask if college is really going to be worth the cost. There are certainly many alternatives to 4+ years of traditional college. Vocational alternatives are plenty and may be more appropriate and less expensive with perhaps better long- term results for many.

But, if college is the answer, how is one to pay for this. The risk here is for parents, who also are having to consider saving for their own retirement, using much of their earnings for college costs. Folks are living longer and having sufficient funding for retirement needs to weigh in for consideration as well.

With that caveat, here we go. For college/secondary education, there is something called a 529. The 529 is a college savings plan, state sponsored, where one can invest for a beneficiary and pay for education expenses. Funds held in a 529 plan can be withdrawn tax-free to cover nearly any type of college expenses. Contributions can be in excess of $200,000, will grow tax-deferred, and be withdrawn tax-free if used for educational expenses. This can be a family affair as grandparents, aunts and uncles can provide funding as well. Of course, the earlier the better for potentially meeting future education expenses.

Another thought I was made aware of is to go to junior college the first two years and then transfer out and receive your degree from the larger institution. This option could save a lot money and the diploma will show the university from which you graduated with no mention of two years in a junior college.

Equity in your home is potentially another alternative. These funds, when borrowed, have interest costs that are currently tax deductible. As opposed to most college loans where the interest is not deductible. The risk, again for the parents, is using funds that may be earmarked for retirement. Also, borrowing against the home value and then having real estate values plummet, this happened in the 80’s. With proper discretion, this has been used as a college funding means many times.

While the children are in their teen years, are they working some jobs? If so, these funds could be put into a Roth IRA. Funds can be invested, grow tax -free and can be withdrawn tax-free for educational expenses.

One other thought, a bit out of the ordinary, but funding a permanent life insurance policy. This policy most likely would be a type of Indexed life policy. The idea is to apply for a minimum death benefit and fund the maximum amount so that most of the money is in the investment account. Money would then be taken out, via a loan, tax-free for educational expenses.

Perhaps too much to think about, but if one’s children hope to go to college one day, these are some choices to consider.

Here at Vitus Wealth Management, we are happy to review your options and answer any questions you may have. Give us a call at 817-717-3812 to learn more about options and opportunities.