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Starting Early- A Guide to Saving for College

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Starting Early- A Guide to Saving for College

Reading Time: 5 minutes

Focusing on the SC Future Scholar 529

As summer is almost over and kids will be heading back to school very shortly, many parents are thinking about their children’s future education. My oldest son is just a few years away from college, and the financial decisions we make now will have a lasting impact. From the early days of our marriage to the birth of our son, we have diligently saved for his higher education, with generous contributions from grandparents along the way. In this article, I want to share insights on how to begin saving for college through the South Carolina Future Scholar program, offer tips for when your child heads off to college, and emphasize the importance of prioritizing your retirement planning. 

If you’re not from South Carolina, don’t worry—many states across the country offer similar 529 college savings programs. These plans generally function in the same way, providing tax advantages and flexible investment options to help you save for your child’s education. However, specifics can vary from state to state, so it’s important to check your own state’s 529 plan website for detailed information and benefits unique to your region. Reaching out to your state’s program can provide the exact details and advantages available to you.

One more thing to remember before we dig in: You can borrow for college but not for retirement.The Illusion of Wealth

Understanding the South Carolina Future Scholar Program

What is the South Carolina Future Scholar Program?

The South Carolina Future Scholar 529 College Savings Plan is a tax-advantaged savings plan designed to encourage saving for future education costs. Contributions grow tax-free, and withdrawals for qualified education expenses are also tax-free. This makes it a powerful tool for college savings.

Benefits of the Future Scholar Program

The Future Scholar Program offers numerous benefits:

  • Tax Advantages: Contributions are deductible from South Carolina state income tax, and earnings grow tax-deferred.
  • Flexibility: Funds can be used at any eligible educational institution, including out-of-state and some international schools.
  • Control: The account owner maintains control over the funds, deciding when and how they are used.

How to Enroll in the Future Scholar Program

Enrolling in the Future Scholar Program is straightforward:

  1. Visit the official website and complete the online enrollment form.
  2. Choose your investment options: The program offers a range of age-based and static investment portfolios to suit different risk tolerances and timelines.
  3. Set up automatic contributions: Regular, automated contributions can help grow your savings over time.

Tips for Saving and Leveraging Your 529 Plan

Start Early and Benefit from Compounding Interest

Albert Einstein famously called compounding interest the eighth wonder of the world. The earlier you start saving, the more time your money has to grow. Starting early allows you to benefit from the exponential growth of compounding interest and dividends.

For example, assume you saved $100 per month with an 8% annual growth rate from the time your child was born for 18 years. In this example, the end result when they are heading to college would result in approximately $45,000. This example highlights how increasing your monthly contributions can exponentially increase your savings due to the power of compounding interest over time. Starting early and contributing consistently can significantly boost your college savings.

Make Regular Contributions

Consistency is key. Even small, regular contributions can accumulate significantly over time. Setting up automatic transfers from your bank account to your 529 plan can ensure you stay on track with your savings goals.

Take Advantage of Gift Contributions

Encourage family members, such as grandparents, to contribute to your child’s 529 plan. These gifts can provide a substantial boost to your college savings and are a meaningful way for relatives to invest in your child’s future.

Review and Adjust Your Investments

Unless you choose to invest based on the age-based models, periodically review your investment choices to ensure they align with your goals and risk tolerance. As your child approaches college age, you may want to shift towards more conservative investments to protect your savings from market volatility.

Prioritizing Retirement Over College Savings

Why Retirement Planning Should Come First

While saving for your child’s education is important, it’s crucial to prioritize your retirement planning and savings. You can borrow for college, but not for retirement. Ensuring a secure financial future for yourself is essential, as it reduces the likelihood of becoming a financial burden on your children later in life.

Balancing Retirement and College Savings

To balance both goals, consider the following strategies:

  • Maximize Retirement Contributions: Ensure you are contributing enough to your retirement accounts to take full advantage of employer matches and tax benefits.
  • Allocate Discretionary Funds: After meeting your retirement savings goals, allocate additional funds to your child’s 529 plan.
  • Utilize Catch-Up Contributions: If you are over 50, take advantage of catch-up contributions to boost your retirement savings.

Preparing for College: Tips for Parents

Create a Family Education Policy

Establish a clear family education policy to outline expectations, responsibilities, and financial plans for college. This can include:

  • Setting Savings Goals: Determine how much you aim to save for each child’s education and create a plan to achieve those goals.
  • Discussing Financial Responsibilities: Clarify what expenses parents will cover and what students are expected to contribute, such as part-time work or scholarships.
  • Reviewing Financial Aid Options: Explore available scholarships, grants, and loans to supplement your savings.

At Intelligent Investing, we’re committed to comprehensive financial planning that extends beyond investment management. That’s why we’ve included a complimentary Intelligent Investing Family Education Policy to assist families in planning for their children’s educational futures. This policy serves as a structured guide, outlining strategies to optimize savings through vehicles like the South Carolina Future Scholar Program and emphasizing the importance of balancing college savings with retirement planning. It’s designed to provide peace of mind, ensuring that families have a clear roadmap to navigate the complexities of educational expenses while prioritizing long-term financial security.

Plan for College Expenses Beyond Tuition

College costs extend beyond tuition. Prepare for additional expenses, such as:

  • Room and Board: Housing and meal plans can be significant expenses.
  • Books and Supplies: Budget for textbooks, software, and other necessary materials.
  • Personal Expenses: Consider daily living expenses, transportation, and extracurricular activities.

Utilize Your 529 Plan Effectively

When it’s time for your child to start college, strategically withdraw funds from your 529 plan:

  • Cover Qualified Expenses: Ensure withdrawals are used for qualified education expenses to avoid taxes and penalties.
  • Optimize Tax Benefits: Coordinate withdrawals with other tax benefits, such as the American Opportunity Tax Credit, to maximize savings.

Planning for your child’s college education requires careful consideration and early action. By leveraging the South Carolina Future Scholar program and prioritizing your financial goals, you can ensure a secure future for both your retirement and your child’s education. Start early, make regular contributions, and stay informed about your investment options. With thoughtful planning and dedication, you can navigate the financial challenges of college savings and provide your child with the best possible start in their academic journey.

At Intelligent Investing, we love organizing our clients’ “financial junk drawers” so we can minimize their financial stress and maximize their lives. If you are heading towards retirement and want to get a plan in place, feel free to reach out to us for a complimentary call or coffee.

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How to Create a Family Education Policy

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Reading Time: 4 minutes

We’ve all seen the school supplies on sale at our local stores. That can only mean one thing….school’s about to begin… if it hasn’t already started.

Most articles written by financial advisors on education feature the savings plans for accumulating college funds, such as 529 plans.  In fact, so much has been written about it that I would be remiss to bore you with one more article on a subject that has been covered so well, and so extensively.  So, guess what….I’m not!  If you live in South Carolina, there was a great way to calculate the estimated cost of college by using this Future Scholar Tool. Also, Investopedia has an excellent article on the basics here.

Few families have unlimited financial resources, especially larger families (lots of children), and of course the costs continue to rise.  Additionally, student loan financing is an option, and this is a major decision that merits much reflection. 

Unfortunately, when it comes to financing your children’s education (note, I did not say college), most people do not talk about it, let alone establish a formal Family Education Policy.  

So…what is this Family Education Policy I’m talking about? 

Family Education Policy

At Intelligent Investing, each client receives a personal Investment Policy Statement (or IPS), and the importance of this document is vital to the success of their financial plan.  The Investment Policy Statement establishes reasonable objectives and guidelines regarding our client’s assets. It sets forth a target portfolio indicating risk levels, allocations, and return targets that the client’s money will typically be invested to achieve. We think it is just as vital to have a Family Education Policy, which is a tool used to make sure everyone is on the same page when it comes to any education beyond high school (postsecondary education). We’ve included a free template further down.

Importance of Family Unity

One of Intelligent Investing’s Four Unique Factors is to unify families in financial communication. Intelligent Investing strives to unify families in financial communication. Share on X It is important for husbands and wives to come together on this subject and agree on their goals regarding the education of their children.  The more children you have, the more important to come to an agreement early on as parents.  This was a major part of my wife’s and my financial picture over our working years.  And, sometimes, it doesn’t hurt if the grandparents get involved…it just might even help (can you say estate planning?).

Questions you may consider when making a Family Education Policy

  1. What will we be funding?  How much of an education benefit do we want to provide to each child?
  2. What is our goal?  What do we seek to fund?
  3. Will we pay just tuition, or tuition and books?  Or, tuition, books and housing all three?
  4. What about spending money, transportation and other incidentals?
  5. Are we planning to fund any trips, be they educational or spring break vacations?
  6. What about post-graduate education?

Skin in the Game

Often parents will choose to not fund 100% of their child’s education, even when it is possible financially to do so.  We all know that we are more committed when we have some “skin in the game”, and this increases the student’s odds of academic success.  That summer job, and buckling down and studying hard to merit greater scholarship money may even help them excel in the work place once they graduate.

Scholarship money, you say?  The words “College scholarship” were among the first words we taught our daughter, and fortunately, it did pay off.

The earlier and more often we discuss education and education funding with our children, the more aligned we will be as a family.  It also gives our children the opportunity to discuss their hopes and dreams.

A Family Education Policy gives our children opportunities to discuss their hopes and dreams. Share on X

Assuming our child wins scholarships towards college expenses, and assuming we require our child to pay a portion of their college costs, how should we apply these funds?  To the child’s portion or to the parent’s or grandparent’s portion?  How we apply scholarship money may indeed affect the student’s academic motivation.

College May not be the Best Path

This may be a hot topic for debate, but what if you have a child who is not interested in college, and instead wants to be, say, a homebuilder?  Trade school can lead to business ownership potentially much quicker than college, and business ownership can be the path to both independence and wealth generation.  Contractors, auto repair centers, and other such businesses are quite profitable, and once established are often very stable when compared to careers in corporate America. The quickest path to CEO is not necessarily up the corporate ladder. Also, student loans are daunting and continuing to increase.    The quickest path to CEO is not necessarily up the corporate ladder. Share on X  

With trade school you are focused immediately on a certain curriculum, while in a University there is an opportunity to explore various fields.  

Trade schools are much less expensive that colleges and universities, but remember, treating our children fairly and equitably based on their aspirations and aptitudes doesn’t have to mean treating them equally.

Download a free copy of your Family Education Policy

At Intelligent Investing, we have access to hundreds of college tuition and room and board costs, and our financial planning allows us to choose whatever specific college your child may want to attend using today’s costs. We can then customize how much we want to inflate those amounts and project them into the future. The bottom line is that we think it is important to discuss, determine and communicate a family education policy plan so everyone is on the same page.

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Helping our clients meet their goals is our passion at Intelligent Investing.  If we can help you with education planning or in any other way, please let us know!

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