Saving for Your Child's Education

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The following article was written for and published in Scoop!, a local magazine in Monterey County, CA. Click here to view the PDF version of the magazine and article. 

As Monterey County schools open their doors for tours and open houses this fall, the reality of paying for private school quickly sets in.  A K-8 private education in Monterey County generally costs between $4,000 and 20,000 per year;  a private high school runs $10,000 to $40,000 annually.  Saving for college, on top of this, makes the task of financing your child’s schooling rather daunting.  Whether you have a babe in arms or an eighth grader ready to enter high school next fall, there are some steps you can take now that will help ease the pain of making those monthly tuition payments.

K-12 Years

The most attractive way to save for private K-12 schooling is the Coverdell Education Savings Account.  This account allows up to a $2,000 annual contribution per beneficiary for qualified participants.  Assuming someone saves $2,000 a year over 14 years, and the account averages a 5% rate of return each year, you could have about $40,000 saved when high school starts.  This type of plan allows distributions to be taken tax-free to cover K-12 private school expenses.  Depending on the school you choose for your child, this may only cover a fraction of its cost, but every bit helps.

Also remember this: Private schools are certainly not the only option for giving your child a good K-12 education.   One way to avoid the high cost of private schooling is to look for ways to enroll your child in a high-performing public school, even if it means moving your family into a different school district.  Another is to investigate local public charter school options.

Saving for College

The current cost (tuition and room and board) of a 4-year college education in California, is between $22,000 and $ 50,000 per year (Californiacolleges.edu), with costs historically rising at an annual rate of about 8%.  The best advice for saving for college is start early. 

A 529 plan is the best option for college saving, today.  California offers its own 529 college savings plan, but you are permitted to participate in any state’s plan.  California does not offer a state income tax deduction for contributions, so until it does, it makes sense to shop around for the plan that best suits you.  A 529 plan is an investment account that allows an owner to contribute a much higher dollar amount (gift tax limits apply).  The money that is put in the account is after-tax money that can be invested and grow tax-free.  As long as the money is used for qualified education expenses, the entire account, including earnings and growth, is tax-free.

Qualified expenses typically include tuition, all mandatory fees and other qualified education expenses, including room & board and textbooks.  For financial aid purposes, these plans are treated as parental assets unless owned by someone other than the parent.

Financial Aid & More

Most area schools and colleges offer some sort of financial aid program. Some are merit-based; others offer aid based on need.  Don’t assume you don’t qualify; many families are surprised to learn that money is available if they are willing to take the time and make the effort to apply.

Other financing options include applying for scholarships, asking for help from grandparents and/or close family members and seeking support from local service organizations and agencies, such as Rotary International.

Because everyone’s situation is unique, you may want to have a professional help you prioritize your goals so that you can save accordingly.  Start early…those college years will be here before you know it!