Financial Planning 101 – How to Save Money for College

Charlie McCulloughFrom the Desk of Charlie McCullough

It’s back-to-school time across the United States. From kindergarten to college, parents are dropping their kids off at the doors of academic institutions with the goal of helping them create a bright future. As the parent of three children, our kids are starting the 2014-15 educational journey as well. I recently dropped my son, Sheldon off at UW-Madison for the start of his junior year, while my daughter Callie is hoping to be a Badger next year when she starts her freshman year. Thankfully, my youngest daughter, Ava is just entering 4K so we have a bit of time before she needs to make college plans.

college_savingsAccording to a 2013 report by the College Board, the annual cost of a four-year college can top $30,000 for tuition, fees, and room and board. The growing cost of a college education never ceases to amaze me. While Sheldon and Callie’s college expenses will be covered by a mix of college savings plans and financial aid, we are hoping to have most of Ava’s expenses covered well before she reaches the hallowed halls of academia.

Because this is our third time around, we have been a bit smarter about Ava’s college savings plan – We started early! Our first step was to discuss our hopes, fears and goals for Ava’s college years with our advisor at Financial Fiduciaries. Based on our needs they provided us a great deal of valuable information.

The first suggestion our advisor made was to invest a substantial amount of college assets in stocks and equity mutual funds while Ava is still young. The thought behind this suggestion is that these tools have a history of providing the best long-term growth. However, it is important to remember that past performance is not a clear indicator of future growth. (This is one reason I am so glad to be working with the Financial Fiduciaries team…they will keep me apprised of any problems and help me make adjustments as needed.)

As Ava gets older, we will increase our contributions to fixed-income options such as a 529 savings plan. These tools are among the most popular college savings instruments because they allow individuals to invest in predetermined, professionally managed investments that are tax-free if used for qualified higher education expenses. Additionally, residents in some states may be eligible for a state deduction.

While each plan has their own specifications, in general, lifetime contribution limits can often exceed $200,000. In addition, my wife Lisa and I as well as my parents can each contribute up to $14,000 annually or make a lump sum contribution of $70,000 every five years. There are also no income restrictions, so anyone can contribute to a 529 plan.

Finally, it is important to remember that any savings toward college will affect your child’s eligibility for financial aid (we found this out the hard way with Sheldon). Because of this, we are working very closely with our advisor to develop a strategy that takes this into consideration.

College is an expensive venture for students and parents alike. But, putting a solid plan in place well in advance of the college years can give you the peace of mind needed to face this unique transition with ease.

Charlie and Lisa McCullough are fictitious characters who are utilized to illustrate situations in which people might find themselves.  Their family and friends are also fictitious.  While their stories are inspired by actual situations encountered by Financial Fiduciaries professionals working with clients and prospective clients, they are not intended to provide any specific investment advice.  Each situation is different and any general advice provided in the context of these articles may not be suitable for all individuals.  Always consult a professional for advice specific to your situation.

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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