Being a parents means a person who is blessed with the joy of having a child, but at the same time takes responsibility for building a life for the child with a good education. The success of our children holds paramount importance to an NRI parent. NRIs work abroad and tend to be more concerned about their children’s education. Saving for your child’s college education can seem like an impossible goal because unlike retirement savings, few clear guidelines exist. College costs vary widely depending on where your child goes to school and whether your family qualifies for financial aid.
A Rule of thumb for college saving
Fidelity Investments has tried to clarify college savings with a new rule of thumb: Multiply your child’s age by $2,000 to stay on track to cover half the average cost of a four-year, public university. With this strategy, if you have a 5-year-old, you should have stocked up $10,000, or $2,000 times 5 years, to be “reasonably confident” that you can afford roughly half of the cost of a four-year, in-state public university, said Keith Bernhardt, Fidelity’s vice president of retirement and college products. At age 18, the typical time kids head off to college, your $36,000 fund could reduce the cost of school by 50 percent with the rest coming from financial aid, student loans, and family earnings, Bernhardt said. “Different people have different financial goals, but the 2K rule provides a starting point.”
The No. 1 factor in reaching your college savings goal is that you are contributing to an account consistently. – Keith Bernhardt VP of retirement & college products at Fidelity
The No. 1 factor in reaching your college savings goal is that you are contributing to an account consistently.– Keith Bernhardt VP of retirement & college products at Fidelity
What are the vehicles to save money for college savings?
Parents are often confused if they can use 529 college savings plans or not. 529 college savings plans can affect eligibility for need-based federal student aid in one of two ways, as an asset or as a distribution. The financial aid treatment depends on who owns the college savings plan and whether a distribution is qualified or non-qualified. It is important to understand your financial portfolio and design a solution that will allow you to save money for kids’ education without impacting your ability to get financial aid.
The most common vehicles people use it for college saving are:
- Parent’s Roth IRA
- Kid’s and/or Parent’s 529 Plans
- Kid’s and/or parent’s Stocks & Mutual funds
- Kid’s and/or Parents Cash value Life insurance policies
- UTMA accounts
- REIT Investments
- CD/Savings accounts
Some of the above vehicles affect financial aid some will not. Attend our FREE webinar to learn on various options for college savings and maximize student financial aid.