Now is the time to assess how your whole college-funding program will come together. Get as specific as you can in terms of what kind of school your child will be going to (two-year or four-year school, in-state or out-of-state, public or private), and what portion of college costs will be paid for by investments, financial aid, loans, scholarships and other sources. Start doing research in all these key areas.
- Before you start a college investment program, make sure you are funding your tax-advantaged retirement plans first.
- It is still not too late to begin a monthly college investment program. You can still benefit from some long-term growth. See the section The Cost to get an idea of how much college will cost. Also see the section Inflation Worksheet, to calculate the impact of inflation on college costs.
- If you have already been investing, make sure that the amount you are investing will help you reach your goal. Consider increasing the amount you are investing each month and consider diversification of your college investments. See the section Pre-Funding the Cost.
- Select the appropriate investment vehicles. Consider investing in growth-oriented investments up to age 11. As the child approaches age 13, start diversifying. Look at growth-and-income investments or fixed-income (bonds). As your child reaches his or her mid-teens, consider adopting a more conservative investment strategy, because your time frame is getting shorter. See the sections Developing a Funding Strategy and Investment Vehicles for more information.
- Decide who the owner of the account should be. If you want to maintain control over the funds, do not open the account in your child's name. If your objective is to save taxes and you are comfortable giving up control of the funds when your child is no longer a minor, then consider opening an UGMA account or an UTMA account. See the section Saving Taxes for more details.
IMPORTANT NOTE: If you think that ultimately you will be applying for financial aid, it is best to invest in an account in your own name.
- There are several tax-advantaged ways to save for college. See the section Saving Taxes to determine which investment may be right for you.
- Open a college investment account and begin investing on a monthly basis. See your bank or credit union's investment representative, who can help set up the right type of account.
- Where will you be able to borrow money if you need to? What is the best way to borrow? Many people borrow to fund college costs, the trick is to get the best deal and tax deductions (if you are eligible). See the sections Other Ways to Meet College Costs and Parental Loans for Learning to find out about other resources that may be available.
- Start looking into financial aid. It may seem too early to be thinking about financial aid, but getting a handle on this now will help you in your overall college-funding strategy. It is good to know now whether or not you qualify for financial aid, because some schools have early filing deadlines. See the section Landing Financial Aid for information on this process. Also see the sections Federal Loans and Grants and Private Loans for College for grant and loan comparison charts.
- Start thinking about other resources that would be available to pay for college.
- See the "Putting It All Together" worksheet to help you determine where the money is going to come from to pay for each year of school.
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*We do not provide tax advice. Consult your tax advisor.
*Diversification is a method of controlling risk. It does not assure a profit or the avoidance of loss.
**Dollar-cost averaging is a method of controlling risk. It does not assure a profit or the avoidance of loss. Investors should consider their ability to continue a dollar-cost averaging program in periods of declining markets.