Can You Pass The College Savings Test?

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Mantaining a sound investment strategy can help put your children on the road to a valuable four-year college degree.

Did you know that on average, a college graduate earns over 80% more than someone with just a high-school diploma?1  That advantage, however, comes with a price tag. Currently, the annual cost of a four-year private college can top $30,000 for tuition, fees, and room and board, according to a 2013 report by the College Board. That’s a significant amount of money, but don’t despair. A sound investment strategy can help put your children on the road to a valuable four-year college degree.

When investing for any large financial objective, it’s best to start early and invest often.  First, set your goal:  Estimate how much you will need to accumulate for each child based on his or her age. Then, develop a plan and stick with it. Consider discussing the following guidelines with your financial advisor.

Use an Age-Based Approach

If you have time on your side (12 to 18 years), consider investing the majority of your college assets in stocks and equity mutual funds, as these investments have historically provided the greatest long-term growth potential (of course, past performance can’t guarantee future results). Make sure to consider the volatility involved with equity investing and your ability to ride out potential fluctuations.

As your time horizon nears, you’ll probably want to add or increase a fixed-income element to help balance risk. Also, consider teaching the college-bound student about investing — by encouraging that a portion of the money earned through part-time jobs be contributed to the college savings plan.

Investigate Tools for Saving

When investing for college, consider investing in a 529 college savings plan. These state-sponsored plans allow individuals to invest in predetermined, professionally managed investment pools. All earnings and distributions are tax free if used for qualified higher education expenses2 and residents of the sponsoring state may be eligible for a state tax deduction on contributions to the state’s 529 plan.

Lifetime contribution limits to 529 plans often exceed $200,000. In addition, you can contribute up to $14,000 annually or make a lump-sum contribution of $70,000 every five years — up to the plan’s lifetime contribution limit — without triggering gift taxes. Another plus: there are no income restrictions on contributors to a 529 plan.

Work with your financial advisor to devise a strategy and choose from among different investments to pursue a long-term financial goal, such as a child’s or grandchild’s college education.

1Source: U.S. Census Bureau, 2011. Based on lifetime earning figures.
2Nonqualified withdrawals are subject to a 10% federal penalty tax.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.  © 2014 Wealth Management Systems Inc. All rights reserved.

If your child is now in his or her junior year in high school, it’s time to begin taking serious action.  Remember, it’s never too soon!   Here are a few resources I’ve put together you might find useful:

  • Find out how much scholarship money your student qualifies for
  • See a short video, “A Lesson in Paying For College
  • Download a free report:  “Insider Strategies and Secrets to Reducing Your College Costs
  • A College Cost Calculator:  Projected four-year costs for the specific college you want  (go to the Introduction tab)

There’s also a College Planning Primer (Primer 101 and Financial Aid 101) and even a way for IFG to provide you with a diagnosis of your current situation!

Oh, yes, you can even subscribe to College Ed Xpress, our e-letter that will keep you informed about important college planning, funding, and admissions information.

It’s all on our new College Planning site!  Enjoy!

Jim

ADDITIONAL RESOURCES:

Arrange a brief 15-minute introductiory phone call with Jim Lorenzen, CFP®, AIF® here.

Social Security – The wrong claiming strategy could conceivably cost hundreds of thousands of dollars!   Knowledge is more than power; it’s real money.  You can learn how to get to the right strategy with the right planning.

College Planning and Funding Strategies –  Just like with the airlines, there are often two prices people pay for the same education:  The price paid by the informed and the price paid by the uninformed.   What are the projected four-year costs for the college your student desires?  How much scholarship money will your student qualify for?  You can see a short video, “A Lesson in Paying for College”, and download a free report, “Insider Strategies and Secrets to Reducing your College Costs.”  You can learn more on the IFG College Funding site.

Financial Planning and Investing:

IFG Report:  Understanding Mutual Funds

IFG Report: The Hidden Risk No One Talks About  (Registration required)

Begin the discussion with your spouse with this Financial Converstion Checklist.  (No registration required)

Facing financial decisions but feel you need to do some homework first?  You might benefit from looking through our free Life Guides and using some financial worksheets!

Visit theIFG Website!

Follow Jim on Twitter: @jimlorenzen  and also on Jim’s MoneyBlog

Jim on LinkedIn

IFG on Facebook

Become an IFG client!  Schedule your 15-minute introductory phone call here!

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice.

The Independent Financial Group is a fee-only registered investment advisor with clients located across the U.S.  He is also licensed for insurance as an independent agent under California license 0C00742. Jim can be reached at 805.265.5416 or (from outside California) at 800.257.6659.

Interested in becoming an IFG client?  Why play phone-tag?  You can easily schedule your 15-minute introductory phone call!

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

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Interested in becoming an IFG client?  Why play phone tag?  Schedule your 15-minute introductory phone call!

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.  IFG helps specializes in crafting wealth design strategies around life goals by using a proven planning process coupled with a cost-conscious objective and non-conflicted risk management philosophy.

Opinions expressed are those of the author.  The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Jim's picture
Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice as Founding Principal of The Independent Financial Group, a fee-based registered investment advisor with clients located in New York, Florida, and California. He is also licensed for insurance as an independent agent under California license 0C00742.

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