College savings: Craft smart plan for your child’s future success.

TLDR:

Financial adviser Hunter Yarbrough provides recommendations on saving for college. The “1/3 Rule” suggests saving 1/3 of college costs beforehand, paying another 1/3 from income during college, and covering the remaining 1/3 through scholarships, student income, or student loans if necessary. Prioritizing retirement savings is important, but if the budget allows, saving for college should be the next step. 529 plans are excellent vehicles for education savings and offer tax-free growth and withdrawals for education expenses. The maximum contribution limit for 529 plans is set by each state and there’s an annual withdrawal limit of $10,000 for K-12 education expenses. An ideal contribution amount for a 529 plan is about $170 a month or roughly $2,000 per year. Roth IRA contributions and Roth contributions in 401(k)s or 403(b)s should be considered before contributing to a 529 plan for families with an adjusted gross income under certain thresholds. A simple plan and understanding of options are key when saving for college.

Key points:

• The “1/3 Rule” recommends saving 1/3 of college costs beforehand, paying 1/3 from income during college, and covering the remaining 1/3 through scholarships, student income, or student loans.
• Prioritize retirement savings before saving for college.
• 529 plans are excellent for education savings and offer tax-free growth and withdrawals.
• Consider Roth IRA contributions and Roth contributions in 401(k)s or 403(b)s before contributing to a 529 plan for families under certain income thresholds.
• A simple plan and understanding of options are important when saving for college.