In this day and age, earning a degree from an accredited university or college is very important if a person wants to obtain a financially rewarding job. Unfortunately, the cost of going to college is continually rising. Many parents want to help pay for their children to go to college in order to help prevent their children from accumulating massive debt from student loans. But being able to contribute a substantial amount of money towards college expenses requires financial planning. If you have young children, avoid these costly mistakes when saving for college expenses:
Failing to Start Saving Early
When it comes to saving money for college expenses, the earlier you start, the better. This is especially true if you have more than one child and want to help pay for some or all of your children's schooling costs. Starting a college savings account as early as possible will allow you to take advantage of compound interest, so your money can grow. There are several different accounts that allow you to do this. A 529 education savings plan is a popular option that is designed specifically for college savings and also offers tax advantages. You may want to consult a financial planner for advice on the best option for your financial situation.
Borrowing from a 401(k) to Pay for College
If parents don't establish a college savings account when their children are young, they are often tempted to borrow money from their 401(k) retirement accounts to help their children with college expenses. Doing so can actually be a huge mistake that can be very costly. Depending on the rules of your 401(k) plan, borrowing a large amount of money may make you no longer eligible to have your company match funds. In addition, if your company goes out of business, terminates your employment, or lays you off, you will have a short period of time to repay your 401(k) loan, which can cause significant financial strain. Look into other options for paying for college before ever taking money from your 401 (k).
Ceasing to Make Contributions to a 529 Plan After a Teen Enrolls in College
When a child starts their freshman year of college, don't stop making contributions to his or her 529 plan. You are allowed to continue to contribute money to the account throughout their college career, and you will still enjoy the tax advantages and compound interest. Continuing to add money to a 529 plan will help make paying for college more affordable.