High-income parents are often astute about funding their retirements, but they’re not always as smart about saving for their kids’ college educations. Not saving enough — or saving the wrong way — can cost you tens or even hundreds of thousands of dollars. The certified financial planners at Resource Planning Group of Atlanta, Georgia, explain.
The Ballooning Cost of College
We all know college these days is expensive. How expensive?
According to a 2020 report by the College Board, the cost of college today is 2.78 times higher than it was 30 years ago in 1990. The federal minimum wage in 1990 was $3.80; today it is $7.25, an increase of less than two times. At the same time, the average home price in 1990 was $122,900; today it is $340,000. Our point is that for poor and working-class Americans, college is utterly unaffordable — so much so that the cost of college deals a serious blow to even middle and upper-middle-class Americans.
Today, tuition, room and board at a four-year public institution in the U.S. is about $50,000. Ivy League schools top out at about $80,000 per year. For three kids, that would be $960,000. They will all expect to pursue Masters’ degrees as well, for a further half-million dollars.
Successful passage of any education reform legislation is unlikely to help high-income earners, as this would be aimed at students attending public colleges.
How to Fund Your Kids’ Education
Starting a 529 account is a good way to save for college because it also provides tax benefits to you. The more you earn and the more you save, the greater the benefit to your family.
Although most 529 plans will require you to name the child for whom the money is being saved, you are allowed to use this money for any of your children or even yourself. The only requirement is that it be used for education.
That’s an important benefit, because that last thing you want is to have a restricted education account with a couple of hundred grand sitting in it only to have junior tell you he wants to be a weed farmer or a musician instead of going to college. If this happens, you’ll still get to use the money you saved.
Resource Planning Group of Atlanta
The education financial advisors at Resource Planning Group love 529 plans, but they’re not the only vehicle you can use to save money for your kids’ education. Make an appointment today to come in and talk to our certified financial planners about the best ways for you and your spouse to save money for your kids’ college education.
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