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7 Mistakes to Avoid When Saving for College

The cost of attending college continues to increase every year. This means families are required to prepare in advance for college expenses and not wait until it is too late to begin to save. However, it can be easy to make a couple of mistakes while attempting to save for college. In fact, close to 75% of children between the ages of eight to fourteen states that they want to go to college, however as high as 50% of parents do not save for college on a regular basis. The good news is that you can prevent these mistakes early on when saving for your children’s or your own college education.

Savings Account to Save For College

If you are a parent saving for your kids’ education then a 529 plan is the way to go. This is a tax-free college savings plans that is much more efficient then a savings account when saving for college. Many parents make the mistake of thinking that putting money into a savings account is better than a 529 plan when saving for college. This is similar to thinking that putting money into a savings account for retirement instead of an IRA or 401(k) is better. The bottom line is you are missing out on a financial opportunity if you put your college savings into a savings account.

Miscommunication on Who is Paying

Often times there is a disconnect between families as to who is paying for a college education. Make sure that you communicate with your family in order to make clear who exactly is paying the college costs. This will ensure that there is no confusion when it comes to what is expected of each family member.

Putting College Savings before Retirement

A survey done found that 52% of parents consider it more important to save for their kids’ education rather than for their retirement. However, it is recommended that retirement be taken as a priority. There are always grants and scholarships that are available to kids who want to attend college, however there is no such funding when it comes to retirement.

Not Considering College Education Tax Breaks

This is a big mistake to make as some of the best tax breaks that are available are given to middle-class US citizens who are looking to attend college. These tax benefits can be presented as a tax credit or a tax deduction and can save you or your family thousands of dollars just for paying for a college tuition or for funding a 529 account. On top of this, there are such things as the Lifetime Learning Credit and the Hope Scholarship that can place anywhere from $1,000 and $2,000 in your pocket during tax season. It is a huge mistake not to take advantage of this.

Take Into Consideration Inflation

Realistically most college tuition will increase due to inflation. In fact, college costs will increase by an average rate of 5 to 6% each year, which means that college expenses are rising 3x as fast as any other type of expense. It is recommended that you look into accounts that aid in fighting inflation such as a Prepaid Tuition Plan.

Financial Forms

Although your CPA is an expert in tax preparation and planning, this is not the case when it comes to any type of financial aid planning. For instance, if your CPA recommends that you put some of your assets in your kid’s name to save you money when it comes to tax season, this may be well intentioned but it will drastically reduce your ability to receive financial aid. Additionally, CPAs are not trained to fill out financial aid forms, and so can fill them out incorrectly, which will force you to re-do the form.

Procrastination

It is definitely not recommended to procrastinate on college education planning. You should start calculating the future expense of a college education well in advance and determine how much money you should save every year. Even if you are unable to save the exact amount that you calculated every month, it is better than not saving at all.