Saving for retirement and college
simultaneously is a balancing act that many families face.
However, experts say these goals don’t have to be in
competition with each other. To manage both priorities,
consider the following tips.
• Get started now: "Your greatest asset is
time," says Mark Kantrowitz, bestselling author and
financial expert, who points out that every dollar you save
is approximately a dollar less you’ll have to borrow, and
every dollar you borrow will cost about two dollars by the
time you repay the debt. "By saving money, you literally
save money."
Make saving for both college and retirement
a given with automatic monthly transfers from your bank
account to your different savings plans.
• Don’t mix apples and oranges: Don’t use
your retirement plan as a college savings fund.
Distributions from retirement plans, even a tax-free return
of contributions from a Roth IRA, count as income on
financial aid application forms.
Save for college using a 529 college savings
plan, which according to savingforcollege.com, offers tax
and financial aid advantages not available for other savings
methods. Like a Roth IRA, with a 529 you invest after-tax
dollars, earnings accumulate on a tax-deferred basis, and
qualified distributions to pay for college costs are
entirely tax free. But 529 plans can be treated more
favorably by financial aid formulas.
• Follow formulas: Maximize the employer match on
contributions to your retirement plan. That’s free money, so
take advantage of it. As a general rule, Kantrowitz
recommends saving one-fifth of your income for the last
fifth of your life.
As far as college is concerned, he says
to use the one-third rule to split future college costs: one
third from savings, one third from current income and one
third from loans.
• Look at all funding sources: If
scholarships, grants and federal loans in the student’s name
fall short, consider private student loans or a private
parent loan. For simple, personalized loan options, check
out specialists in the industry, such as College Ave Student
Loans. Using technology and expertise, they offer
competitive rates, a wide range of repayment options and a
customer-friendly experience from application through
repayment.
Financial industry veteran Joe DePaulo, CEO
and co-founder of College Ave Student Loans says that
keeping your child involved in college cost discussions is
critical to avoid becoming the bank of Mom and Dad, and that
parents can be very influential in setting up a student for
long-term financial success. "As a general rule of thumb,
students shouldn’t borrow more than what he or she expects
to earn their first year out of school," he says.
For more information, tips and resources
visit collegeavestudentloans.com.
A college education is invaluable, and with
smart strategies, parents won’t have to compromise their
financial future to fund it.
Courtesy StatePoint
