Calling it “wishful thinking,” Cheryl Thibault opened a college savings account after her daughter had already graduated high school and started working as a dental assistant.
“She made the choice she didn’t want to go to college right away,” says Thibault, who lives in Idaho. “So I opened an account and I just kept putting what I could into it.”
The move paid off several years later when her daughter decided to go back to school to earn a degree in dental hygiene — increasing her earning potential from about $15 to $17 an hour as a dental assistant to $40 to $45 an hour as a hygienist, Thibault said.
“For my family, it made a huge difference,” she said. “It just helped me to keep the promises that I always wanted to make.”
Parents, like Thibault, who get a late start saving for college should consider the following do’s and don’ts.
[See four college savings tips for community college students.]
— Don’t worry that it’s too late to save: “Any time you’re ready to save for college is probably a good time to start,” says Oak Park, Illinois-based certified financial planner Brian Plain. “Obviously the earlier you can start , the better, but I wouldn’t let being late to the game prevent you from getting started.”
Thibault said she put $100 a month — $50 for her daughter, plus $25 for each of her two grandchildren — into the Idaho 529 plan, which is a college savings plan with tax advantages . “Not enough to really miss it,” she said.
Over time, the amount added up, and she “made a good dent” in her daughter’s tuition and living expenses, she says.
— Do look at your overall financial picture: If college is the immediate financial issue in your life, it may be tempting to devote all your financial resources toward it. But avoid doing unintended damage to your finances, specifically when it comes to retirement funds, Plain says.
“I think retirement should come first,” says Ashley Bleckner, financial advisor for Newport Beach, California-based RS Crum Inc. “They have loans for college; they do not have loans for retirement. That would need to be the priority. Pay yourself first and plan for retirement.”
— Don’t get hung up on the savings vehicle: Bleckner says she likes 529 plans, which are state-sponsored college savings accounts, because of the tax advantages. Savings grow on a tax-deferred basis and can be taken out tax-free as long as they are used for qualified higher education expenses.
But don’t get mired in a hunt for the “perfect” savings vehicle, Plain says. A 529, Roth IRA or even a traditional savings account works.
“Don’t let perfect be the enemy of good here,” he says. “It’s more important, especially if you’re getting a late start, just to put the money aside and have it earmarked.”
[Learn what investment options there are in 529 plans.]
— Do be conservative: Because late college savers will need the money in the short term, they should consider more conservative investments, such as bonds — rather than stocks, where they could lose their money and not have time to gain it back.
“If we’re talking about getting a late start, where you’re less than five years away from your child needing to use those funds for school, you don’t want to have that money invested in any sort of aggressive vehicle in hopes of making up time,” Plain says. “The risk-reward trade -off probably just isn’t worth it.”
With conservative investments, college savers should have realistic expectations, Bleckner says.
“You’re not going to have the same amount of growth,” she says.
— Don’t be afraid to start at a less expensive school: Families getting a late start saving could consider starting the student at a community college or a nearby state institution for the first year or two, then transferring to another school. That could buy more time to accrue savings, while still allowing the student to graduate from the school of his or her choice.
“If it’s costing less than you thought it would as a parent, it gives you a chance to put aside some more money,” Plain says.
Employers typically only look at where students graduate from, not where they start, Plain says.
[Learn four ways to kick off the college savings talk.]
— Do have tough conversations: Bring your children into the conversation about college costs and what you’ll be able to contribute and what they’ll be expected to pay.
Thibault says even though she and her daughter got a late start, “it’s never too late and it can be done.”
“Like I told my daughter, lots of things can change in life, but there’s one thing no one can ever take away from you, and that’s your education,” she says. “That’s a pretty good investment when you look at the other things you can do in life with money.”
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.
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Do’s, Don’ts for Late-Start College Savers originally appeared on usnews.com
