With kids graduating high school and many heading off to college people may be thinking about how they are going to pay for college. It may be too late to start saving for your high school student but for younger kids you have saving options.
Carl Carlson, CEO of Carlson Financial has tips on how to prepare for expenses ahead of time to minimize the sticker shock when kids go off to college.
Education savings accounts, known as 529 plans, are one way to save and they offer tax benefits. Some 529 plans are only designed for in-state, public colleges, while others can be used at schools across the country.
Carlson said he is not a big fan of 529s because of high fees, overdiversification and limited options causing lower returns. He prefers to have five or six well-chosen growth stocks with little or no dividends. Try to have them owned by the child so that when they sell them it will be in their tax bracket, which, if done correctly could limit the cap gains tax. But even with a capital gains tax, it might be better than paying high fees every year, Carlson said.
You would own those stocks outside of an education savings account then the uncertainty of where your child goes to school isn’t an issue.
College costs are rising two-three times faster than general inflation, so it’s never too early to start saving. Technically you could start saving before you even have kids but you also don’t want to sacrifice saving for retirement, only to be a burden on your kids later, Carlson said.
