If you have a child or grandchild who you would like to see graduate from college, the skyrocketing cost of earning a degree may have you wondering if it will be worth it. While the average student today will graduate with $31,172 in student loan debt, studies show graduates with a four-year college degree earn a median weekly salary of $1,137. Employees with only a high school diploma average $678 per week.
So, over the long run, a college education remains a wise investment. In the short term, the high cost of a postsecondary education can make it difficult to cover the initial outlay. But there are many ways to defray those initial expenses and ease – or even eliminate – the debt burdens a college graduate will need to shoulder.
529 College Plans: These tax-advantaged savings accounts are used to save money for qualified educational expenses. With a 529 plan, you invest after-tax money that is withdrawn tax-free. State plans offer different investment options, contribution limits, annual fees and operating costs, but you are not bound to your home state’s plan. If the beneficiary decides not to go to college, the account holder may face fees and tax penalties when withdrawing the funds, unless they are transferred to another beneficiary.*
Roth IRA: A Roth IRA isn’t just for retirement. It can also be used as a tax-advantaged, college savings vehicle. A Roth IRA allows you to withdraw funds tax- and penalty-free to pay for qualifying educational expenses after five years. Because a Roth IRA is a versatile tool, it can be used for other purposes if your child opts to forgo college.
Prepaid College Tuition Plans: These plans allow you to purchase blocks of tuition at current rates, then cash them in for the going rate when your child attends college. Suppose tuition is $10,000 a year, and you invest $5,000 to cover half the cost. If tuition has increased to $20,000 when your child enrolls, your investment would be worth $10,000. About a dozen states offer these plans. Gains in these plans are also usually exempt from federal taxes.
These are just a few of the options to help defray the high cost of sending kids to college. If you would like to discuss these or other plans, please contact First State Financial to schedule an appointment.
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This commentary is provided to you by: First State Financial Services
*Investments in 529 plans involve risks to principal. 529 plans offer no guarantees. Depending on your state of residence and the state of residence of the beneficiary, the plan may or may not be eligible for state tax benefits. There are exceptions to the gift tax and estate tax exemptions; please contact a qualified tax, legal or financial advisor for more information prior to investing.
**First State Financial Services and First State Bank Nebraska are not affiliated with Securities America companies. Not FDIC Insured, May Lose Value, No Bank Guarantee, Not A Deposit, Not Insured by any Federal Government Agency.
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