MEMPHIS, Tenn. — September is College Savings Month in Tennessee, so how much do you have set aside? Saving can be tough for many families in this post-recession economy.
WREG spoke with a financial expert who broke down the differences between two popular savings plans, and explored ways to get started.
He and a parent also offered an important tip that has nothing to do with dollars and cents.
Samira Jubran and her husband are now empty nesters after raising four children, including a set of twins. One is now applying to medical school, and the other three are all in college.
Jubran said getting them there was no easy task.
“We believe that wherever you go, you can take your education with you and it’s an ongoing thing, so managing financially was a priority for us,” she said.
Scholarships are covering the majority of the costs for all of Jubran’s children. However, the small amount left is being paid out of pocket or with student loans.
Jubran says they didn’t set money aside in a college savings plan, but started years ago with planning and slashing their family budget.
“It was hard, we had to sacrifice,” Jubran said as she explained how the family cut out everything from eating out to home repair projects.
She also said the children often pitched in at the family business to stash away extra cash.
Fred Hiatt is the Chief Operating Officer at Red Door Wealth Management. He says discipline is the key to start saving.
“It’s hard not buying new clothes, new shoes, a bigger car, a bigger home,” he said.
Hiatt also helped WREG break down the differences with two popular college savings plans.
The 529 Plan
- Tax free
- Covered expenses can be used at virtually any college in U.S.
- Funds can be transferred to another dependent
- Higher contribution limits
Hiatt says the higher contribution limits mean grandma and grandpa can pitch in if they’d like.
“You can have multiple family members who are interested in contributing, it’s a little bit easier to do the 529 plan that way,” he said.
The Tennessee Stars Program is an example of a 529 that’s sold directly to the customer, rather than by a financial adviser.
Such plans usually mean lower fees, plus additional sign up and even tax incentives.
Coverdell Education Savings Account
- Tax free
- Self directed investments
- Money can be used for qualified K-12 expenses
Hiatt said, “It can be used K through 12, so you can put that money in there and use it for the lower level education in addition to college.”
Hiatt says the best advice he can offer isn’t financial. He says the true investment in a child’s education starts early by focusing on their future.
Parents and family members can support by helping with homework, ACT prep classes, and encouraging extracurricular and community involvement.
That very approach led to scholarships for Jubran’s kids, which in turn slashed the price her family is paying to send four children to college. She says the whole family, especially the kids, have to buy in.
“It’s a process, it’s a big process and I learned if they’re in it and they accept responsibility, they will excel more,” she said.
Hiatt also encourages parents to begin saving as early as possible and consider direct deductions from their paychecks.