College Savings Errors to Avoid
College Savings can be a confusing situation. Here’s 3 Common mistakes and how to fix them
Saving for your kids’ college education can be confusing, but it doesn’t have to be a daunting task. Learning the best ways to save can help you avoid costly mistakes – and increase your yield.
Mistake #1 – Choosing a plain old savings account
When you’re concerned about losing money on an investment, a standard savings account might feel safer. The interest on that account, however, won’t even keep up with inflation, let alone the rapidly rising cost of college.
• The Fix – If an aggressive investment isn’t right for you, at least choose a 529 plan, specifically designed for college expenses. Money in a 529 plan grows tax-free until your child uses it to pay for school. And if you’re lucky enough to get lots of grants and scholarships, you can transfer a 529 to another child.
Mistake #2 – Believing savings count against you
Some parents choose not to save for their children to go to college because they (erroneously) believe a robust savings will hinder their ability to get financial aid.
• The Fix – The truth is that it’s primarily what you’re earning – not saving – that colleges take into consideration when granting financial aid, so save away.
Mistake #3 – Setting and forgetting it
Everyone’s financial situation changes over time, as do tax laws and investment options. But too many people set up savings plans once and never revisit them.
• The Fix – It’s important to review your investments on a regular basis, and that’s especially true if your goals are in the shorter term. College investments that get more conservative over time are preferable, as they reduce risk as the child gets closer to college age.