SACRAMENTO, Calif. — More than two million high school grads are starting college this fall, according to a report from the Associated Press. It comes with some jaw-dropping costs.
From tuition increases at state schools to $90,000 at some elite private schools, California students are faced with tough decisions on how to pay for college.
ABC10 spoke with a financial planner who says there are ways to plan for the increasing cost of higher education.
The cost of attending college has gone up more than 150% in the last four decades, according to the National Center for Education Statistics.
It comes as the California State University Board of Trustees approved a multi-year tuition increase this this year after a similar announcement from the University of California in 2021.
So, how can you help make the cost of college still make sense for your family?
Joseph Eschleman, the president of Towerpoint Wealth, says there are huge economic and tax benefits to setting up a ‘529 Plan.’
“Not only does it grow tax free, but then when you’re actually making withdrawals, which has to be used for educational expenses, the money also comes out tax-free as well,” he said.
Each plan is somewhat unique, and a student can be the beneficiary of more than one 529 Plan.
“More recently, they’ve liberalized that a little bit more to secondary school, primarily private school, but also educational expenses,” Eschleman said.
There are other ways to save for college too. You might consider custodial accounts and UTMAs, which stands for Uniform Transfer to Minors Act.
Eschleman said these kinds of accounts don’t necessarily have to be used for education, but some have tax benefits and are easy to shift the assets to a child.
One drawback is when the child turns 18 or 21, the money is legally theirs and doesn’t have to be used for education.
“At Towerpoint, we’ll often recommend that a client not establish or fund a 529 for a student or a child who is 14, 15, 16 years old because that money is earmarked and pigeonholed specifically for educational expenses, and there's not as much of a benefit of that tax-free growth if that money is going to be needed or used just in the next few years,” Eschleman said.
So, you might consider splitting the difference — try putting half in a 529 and the other half in a regular account that you as a parent or custodian of the account can control.
Experts suggest letting family and friends know you have a college savings account for your child or grandchild so they can make contributions if they want to.
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