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5 Costly Mistakes Parents Make when Saving for College


In saving for college, 529s can be a wise and worthwhile investment.  Be wary of these 5 common and costly mistakes that families make.

Not Saving for College Early Enough

A contribution of $200 per month for 10 years at 5% compounded annual return, for example, would grow in excess of $31,000. In 15 years your savings would grow to approximately $54,000. Regular savings over time can have a significant impact on your ability to pay for college. The earlier parents start making regular deposits into a 529 College Savings Plan, the more time the money has to grow. Distributions for payment of higher education expenses are exempt from income (including the profits from growth and dividends).

Taking a Loan on Your 401K Plan to Help Pay for Your Child’s Education

A distribution from your 401K must be considered a loan or it will be taxed with penalties. Furthermore, the loan will have to be repaid within 60 days if you lose or quit your job. Be careful and ask for advice before taking loans or distributions from your 401K.

You likely know that withdrawals from retirement accounts are the biggest mistake you can make when paying for college. Be aware that taking a loan from your 401K can also be a very dangerous and expensive alternative

Being Unable to Qualify for Tax Credits Because of 529 Distributions

The IRS does not allow two tax credits or a tax credit and a tax deduction for the same college education expenses. When you use 529 distributions to pay for college expenses you will not be allowed to take the $2,500 maximum American Opportunity Credit on your tax returns. Be sure to speak to your tax and financial advisor for the latest tax rules which may, with proper strategic planning , allow both benefits.

Saving for College in Your Child’s Name

Our advisors have written a lot about never putting savings in your student’s name. The only exception is with student-owned 529s which, under FAFSA rules, are still considered a parent asset. Be careful, however. If your student ends up going to a school that uses the CSS Profile, these schools may or may not consider it a parent asset.

Choosing 529s or Other Investments with High Annual Expenses

Though a lot of 529s nearly require an advanced degree in math to understand, make sure your investments are cost-efficient. An extra 2% in fees may decrease your investment’s value by 30% to 50% over a 20-year period and increase the amount you will have to save to reach your goals.

Forgetting Your Retirement Income Plan

Too many parents put off funding their employer retirement plans and their Traditional or Roth IRAs while saving for college. The latest statistics state that a male who is 65 years old will live to age 84 years old and a female will live to age 87.  It is vital that retirement funding be part of your current financial plan.


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