The Pandemic Has Changed How Parents Save for College - Here’s How to Get Back on Track

By: Ann Arceo

As parents, we want what’s best for our kids and education is top of the list for many of us. Of course we had no way of knowing that this year would disrupt and change so many of our plans. From an economic downturn to school closures, 2020 is a year we won’t soon forget. As we’ve scrambled to adjust our family routine to make this school year work, it can be easy to put off planning for a future goal like college that’s years down the road. 

If you can relate to that feeling, you’re not alone. A recent CNBC article highlighted a survey showing “16% of parents saving for college paused their contributions” while 13% reduced contributions and 17% planned to withdraw funds” because of financial concerns due to the pandemic. Worrying about your finances during this time is certainly understandable, but the one rule parents should keep in mind when saving for college or any major financial goal is that time is one of your biggest assets. By starting early, you’ll ultimately need to save less given that your money will have time to grow. So if you’ve started saving and stopped or even if you haven’t started saving at all, the 4 steps below can help you make a plan and get on track. 

Set up a 529 Plan 

A 529 Plan is a college savings account that offers special tax benefits. You contribute to the account with after-tax money. As the account grows, earnings are tax deferred and withdrawals are tax free as long as you use the account to pay for qualified expenses related to education. Each state offers their own 529 plan, but that doesn’t mean you’re limited to your state’s plan. 35 states offer an income tax deduction or tax credit for residents who contribute to the state’s plan. You should consider not only the state income tax deduction but also the fees that the plan charges as high fees can hurt the growth of your savings. 

Most plans make it easy to invest the money you contribute by offering age-based investment options that will automatically become more conservative as your child nears college age. There are several other features that make 529 plans an attractive option such as the fact that there is no age limit for using the money in your account so it could be applied to graduate school if your child continues their education. 

The drawback of a 529 plan is that in order to avoid taxes and penalties the funds must be used for qualified expenses. If your child decides not to go to college you can change the beneficiary on the account making the funds available to a sibling. Also, taxes and penalties will only apply to the growth on your account, not the principle balance. For example, if you contribute $10,000 to a 529 plan and it grows to $12,000 then you have $2,000 in earnings on the account which could be taxed and penalized if the funds are used for something other than qualified college expenses. 

Start Early & Make Saving Automatic

There is no denying that college is expensive, and that doesn’t seem likely to change anytime soon. It can feel overwhelming to think of saving thousands of dollars, but if helping your child pay for school is a goal on your list then starting early and saving consistently can make a big difference. As a mom of a 2 and 4 year old, I get how hectic life with little ones can be. Try to set aside a little time to establish your child’s 529 plan and set up an automatic contribution and investment. For example, you could set up a $50 monthly contribution (more or less depending on your goal and budget) that automatically pulls from your checking account, goes into the 529 plan, and is then invested in the age based investment option. You could increase the contribution amount each year as your income grows. This will make saving easy and automatic and before you know it you’ll be well on your way to funding your child’s education. 

Don’t Let Your College Savings Fund Become Your Emergency Fund 

No parent who has worked hard to establish a college savings fund for their child wants to dip into that fund to pay for an unexpected expense. In order to avoid that scenario, It’s important to prioritize saving for an emergency on top of building a college savings account. Be realistic about your budget and what you can afford to save for college. Paying down high interest debt, building a solid cash cushion, and saving for retirement should also be priorities. 

Set a Goal & Review it Regularly 

Saying that you’d like to pay for your child’s education is a wonderful dream, but if that dream is ever going to come to fruition then you need an actionable plan. There are several online college savings calculators like this one from SavingForCollege.com (https://www.savingforcollege.com/calculators/college-savings-calculator) that can help you set a savings goal and research 529 plans. 

Here at Rooted Planning Group, we also work with clients to help them with college planning from setting up an account, to selecting investments, to determining how much you should save. Whether you’re in the newborn days of parenting or navigating the teenage years, we can help you build a plan that will work for you and your family to make your financial goals a reality. 

About Ann Arceo: Ann Arceo has been working in the financial planning industry for over 10 years. She began her career in financial planning at PartnersInWealth, a wealth management firm based in Houston, Texas, which caters to high net worth clientele. She worked with the firm’s president to develop a new method of training to help advisors learn to deliver technical financial plans in an easy, "plain English" format that clients would understand.

​She then worked for LPL Financial, an independent broker dealer, where she earned her Series 7 & 66 securities licenses. She worked alongside a branch manager creating financial plans, account summaries, and investment performance reports for high net worth clients.

Ann also has a passion for writing, and her financial articles have been featured on Investopedia.com, a website which has 20 million unique visitors per month. She has also written for ReadyForZero.com, BudgetTracker.com, and has been quoted in articles for Forbes and U.S. News & World Report.
 
Ann holds a bachelor’s degree in Business Management from the University of Houston, Victoria. She lives with her husband and two children in Fort Collins, CO. They enjoy spending time with friends, hiking, and of course planning their financial future together.

Love and Money

With Valentine’s Day right in the middle of February, we are surrounded by reminders of love and relationships. We thought this month it would be appropriate to spend some time talking about relationships and finance.

by Kate Welker, CFP®

Money consistently is listed as one of the top reasons for stress in relationships and causes for divorce. Money is one of those topics that people sometimes like to avoid, as if they don’t talk about it it won’t exist, and that just leads to more stress. Along with your Valentine’s dinner I want to encourage you to set up a money date.

Make it a real date. Mark it on the calendar, get a babysitter for the kids, put on a nice outfit. You want to be able to focus and still enjoy your time together.

Spend some time reviewing what your current status is.  Take a look at your current accounts, your assets and your debts, income and expenses, to get a “snapshot” of what your financial picture looks like. Talk about your goals to see if you are spending your money in the right areas.If you’re not, ask why. Is it debt, unnecessary spending, or something else in your lifestyle? When you talk about these things together you have a teammate to work towards your goals with. It’s easier to say no to extra spending if there are two of you on board.

Check in on your feelings about your money. Do you feel stressed over your spending, do you feel like you aren’t saving enough, maybe you have plenty each month but you don’t feel in control over where its going. Whatever it is, spend some time discussing if you are happy with your money and why or why not. 

If you decide there are changes to be made talk about what that looks like and what the next steps are.

It is extremely important to be honest, hiding financial problems leads to more stress and bigger problems. There is actually a term for this - financial infidelity. If you are hiding anything it will be extremely difficult to bring this up, but it needs to be addressed. If you are struggling with how to work through this you may want to enlist the assistance or a counselor or financial professional. 

We hope you enjoy your money dates and it encourages you to do it more often. We would love to hear from you if you try this, let us know how it went!

Financial Planning Strategies for Holiday Spending and Savings

It’s hard to believe that we are already in the holiday season. Christmas is just over a week away so in this week's Monday Morning Quarter-Buck, Financial Planner Becky Eason (who we affectionately call our budget queen) is going to give you a few tips to save money in the upcoming weeks. 

Tip #1
A great way to save some money during the holidays is to wait until a few days after Christmas to have family gatherings. While it may be too late to do this for this year it can be something to keep in mind for future years. You might be asking “how does this save any money?”

Well, if your family does gift exchanges, then purchasing a gift the day after Christmas when retailers usually mark their Christmas inventory to 50% off, will be a very big savings.

Included in the discounts are gift packages, stocking stuffers, wrapping paper and many other little things that you don’t think about but often pick up last minute to fulfill your holiday shopping.

Of course, if you wait until after Christmas to purchase these items there is a chance that the stores will run out before you get there or that you won’t have as good of a selection but you could save a lot of money.

If you aren’t up for taking the risk that you won’t be able to get the items that you really want to gift you can still take advantage of some sort of discounts. You can plan ahead and purchase items for next year, if you have space to store it and won’t forget about the items. Popular items to do this with are decorations, gift bags, wrapping paper, holiday baking pans and holiday clothing. 

Tip #2
This next tip for saving money during the holidays is something that I struggle with, but feel very pleased when I follow my advice. When people say they would rather spend time with you than receive a gift, they probably mean it. It’s nice to both give and receive gifts but after all, aren’t the holidays supposed to be about spending time with those who are close to you?

If you really want to give a gift, try to make sure it’s something that the recipient will actually use and appreciate. And don’t spend money that you don’t have on gifts. All too often we receive gifts and the next year comes around and we realize that we never took the prior years gift out of the box! 

Tip #3
The third tip for saving money during the holidays is on food. We all know how expensive groceries are, especially when we are buying “special” foods for our holiday gatherings. To help spread the cost more evenly among all family and friends consider doing a dish to pass. Not only could this potentially
save you money but it can save a great deal of stress. 

Tip #4
As the holidays come and go, remember to cherish the memories and the time that you have with friends and family.