Tips to Use College Savings for Graduate School
By making strategic adjustments to the way parents spend their money, they can definitely manage to stretch their college savings even beyond their children’s four-year degrees.
As if it weren’t hard enough for parents to save money to be able to send their children to college (which lasts four years) and then to send them to a graduate school, now they also have to face a tough economy and perhaps even some debts. However, planning their expenses carefully and using their hard-earned in a 529 plan that has tax-advantages, parent might be able not only to achieve this, but in fact much, much more.
In order to help parents achieve this level of success, two certified public accountants who are also personal financial specialists – Lisa Featherngill and Jason Washo – have offered some very useful advice specifically directed to parents of undergraduate students who are planning on pursuing MBAs.
Here are the 3 tips they offer:
Using the saved college money as wisely as possible
Let’s say parents didn’t manage to save enough to cover the total of their child’s education. In this, case, while most parents would be tempted to withdraw all 529 plan funds even before their child graduates, they shouldn’t. By all means, parents in this situation should continue to grow their savings for as many years as possible, even better if it is for their child’s entire time in school. This will greatly improve their chances of being able to cover their child’s educational expenses. For example, in just four years earning a two-percent interest on a moderate amount of $20,000, they would be able to earn an impressive $1,648, which will go directly to a college savings plan.
One of the financial analysts mentioned above strongly suggests that parents should contribute during their child’s undergraduate career with as much savings as possible while at the same time avoiding withdrawing funds from 529 or any savings plans. For example, if parents can manage to add at least $200 a month to a 529 savings plan while their child is still in college, these funds can go a long way toward the year’s academic expenses. Acquiring personal loans and education loans would also help, but only if they are able to assume all payments without trouble.
Parents are advised to also also consider any tax benefits that their state might offer, which would provide great motivation for them to save more of the benefits offered are compelling enough.
Always review 529 plans annually
One thing that families have to always keep in mind is that every situation can change. One moment everything is fine and the next your family can experience a layoff that affects their income negatively in more than 50 percent. If this occurs, then parents would have hard time contributing to their child’s education savings. This is why emergency aids exist, so in case something like what we mentioned occur, the situation could make their child eligible for special financial aid like grants, need-based scholarships, or even subsidized student or personal loans.
What is even more, if other additional forms of aid are available, then they might not need to withdraw from their 529. However, if the only financial aid offered to them is by unsubsidized personal loans that usually charge an interest throughout a student’s time spent in college, then this might be one of the few occasions in which to think about withdrawing the full amount from 529 accounts should be plausible.
For example, let’s say a freshman student is eligible for a subsidized federal student loan after a report analysing their parents’ income In this case they will benefit greatly from subsidized student loans since they won’t have to pay interest while in school. All of this while at the same time their account continues to grow.
Ask students to contribute
Of course, all we have discussed earlier on applies only if parents want to fund their child’s entire education. However, if students happen to get part-time jobs, they could greatly help their parents by depositing all or part of their income into 529 plans or anything that could be applied toward education costs. For example, just a thousand dollars that a student earns could easily pay for an entire year’s worth of textbooks.
Families are also advised to consider all aspects of their current financial situation, like for exmaple financial aid eligibility like noted above. Of course, if at some point in the future students decide not to attend school, then the that has already been saved offers parents a lot of options like additional investments or planned expenses.