College Planning - Certified Financial Planner Conroe TX | Starr Financial

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The desire to provide your family an education can often be jeopardized by the lack of planning. Although your children and grandchildren may not yet know what they would like to be when they grow up, it is important to plan, and to plan as early as possible. Whether your children are going to your Alma Mater or the university you could only dream of, by planning well you can leave them with the options you want them to have.

The Reality

College costs are high and rising quickly. According to the College Board, average tuition costs, fees, room and board for the current academic year range from $18,326 for students attending public colleges and universities to $37,390 for average private institutions. You can bet that the price tag will continue to rise. The Bureau of Labor Statistics reports that the tuition component of the Consumer Price Index (CPI) increased by 8% per year, on average, from 1979 to 2001. This means that children born today will face college costs that are several times greater than current costs by the time they start college. When textbooks and supplies are included in the equation, it adds up to a lofty sum. On average parents will pay one half to two-thirds of their children's college costs through a combination of savings, current income, and loans.

Here's a conservative peek at the cost of a college degree at a public four-year university for a child born in the current year:

Current One-year Costs $18,326
Tuition Inflation Rate 6.00%
Years to Enrollment 17
First Year Projected Costs $46,682
Second Year Projected Costs $49,483
Third Year Projected Costs $52,452
Fourth Year Projected Costs $55,599
Total Projected Costs $204,215


To see if you're on track with your savings, click here for the College Savings Calculator.

Time Is On Your Side

It's never too soon to start saving—even as early as the day a child is born. From traditional savings plans to custodial accounts and tax-favored college savings plans—like Education IRAs and 529 Plans—there are many ways to achieve the goal of funding a child's college education.

Several college funding vehicles offer tax savings that make saving less burdensome:

  • Custodial accounts are popular, and may be appropriate, though tax savings are minimal, and you give up control of the assets completely to the child when he or she comes of age.
  • The Coverdell Education Savings Account (also known as the Education IRA) is an acceptable option, as all savings grow tax-deferred and withdrawals are tax-free. But your contributions are limited to only $2,000 a year, hardly enough to cover the rising cost of college.
  • 529 Plans, named after a section of the tax code, are state sponsored college savings programs offering generous tax breaks and other benefits. One option offers prepaid tuition plans—enabling you to pay now, at today's tuition rates for future enrollment. The other enables you to save money in a tax-deferred account to be used to pay for education at future tuition rates.

Benefits of a 529 Plan

  • Generous Contribution Limits  Investment minimums are low—you can start with as little as $25 a month, and there is no restriction on how much you can contribute every year, though contributions of more than $11,000 are subject to the gift tax ($22,000 if contributing with a spouse)
  • Control  The account owner always has control of the money—eliminating the possibility that the money would be used for anything other than higher education
  • Account Flexibility  There are no restrictions on who can open an account for whom. You can open an account for your child, a grandchild or other relative, a friend's child or even yourself
  • Open Contributions  Anyone can contribute to the account—resolving the annual dilemma of what to get a child for his or her birthday
  • Estate Planning Opportunities  Both grandparents and parents can decrease their taxable estates significantly—without relinquishing control of assets

We can help

As independent financial advisors we at Starr Financial offer professional guidance and objective advice combined with top quality investment choices. Working together we can find the strategies to help you keep ahead of the rising costs of education and to better ensure your family the education they want and deserve.

A few helpful websites:

Financial Aid

American Funds 529 Plan

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.