Give Your College Savings Strategy a Year-End Checkup
When preschooler Isabelle Garcia was 8 months old, her mom, Alicia Garcia, read an article on the projected cost of college. Ever since, she reviews statements from Isabelle's 529 plan account, a tax-advantaged college investment account, quarterly and at the end of the school year with Isabelle on her lap.
Her child is a long way away from knowing what she wants to do when she grows up - and what education she needs to pursue it - but sees her name and knows that the dollar amount listed is for her education piggy bank.
Those end-of-the-year checkups will change as children grow older, experts say.
Parents like Garcia whose children are preschool or elementary school age are in the "save what you can" stage, when parents think, "I know I'm going to need to do something, so I'm going to put some money aside," says Scott Gates, director of Kansas's Learning Quest 529 Education Savings Program.
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At the end of the school year, parents should evaluate whether what they've saved will be enough for tuition based on potential investment growth.
Parents should have some kind of proxy school, says Mark Berg, a certified financial planner. A parent would look up the current cost of tuition at the proxy school to have it represent the potential cost of their child's education.
"There's no way parents would know in elementary school, but it does give them a goal to save towards. The easiest proxy school is an alma mater," says Berg, who graduated from Wheaton College. "I have no idea if my kids will go there, but I base savings based on their current tuition," with the expectation that investment interest will cover the difference in tuition between now and then.
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This stage is a good time to decide what percentage of their children's postsecondary education cost parents would ideally like to pay, Gates says.
For her family, Garcia reviews the account balances for her two children at the end of each preschool and elementary school year, and then divides those balances by the number of years until they attend college. She then adjusts the amount taken out of her paycheck up or down to cover any shortfall if the year's earnings weren't as high as she'd like or were higher than expected.
As her children progress to middle and high school and their potential career and educational options become clear, she'll adjust her strategy.
"In junior high, parents should start looking at possible career paths for their kids," Gates says. Middle and junior high students should pursue shadow days and other opportunities to watch professionals in the field.
Berg says career exploration should be used as the conversation starter for introducing the idea of life after high school: the price and responsibilities of a college education and taking care of themselves with their future jobs. His boys range in age from 11 to 15.
[Learn ways to save on college costs.]
"All of my kids know in our household, they'll be responsible for one of four years," he says. "All have jobs where 50 percent goes to their goal." Knowing that they'll have to chip in for a smaller part of their own college education helps the boys visualize the larger price tag, he says.
For Garcia, junior high will be a time to see which subjects her children succeed in and what they like to do; then, she will think about what the education for potential career paths will cost and will adjust savings accordingly.
Since she started saving when her daughter was 8 months old, Garcia feels time is on her side. She'll "have more leeway to make adjustments at the junior high and high school levels," she says.
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.
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