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Smart — and surprising — ways to pay for your children’s education

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Saving for college is a top priority for Hispanics/Latinos — and a financial stress for many parents.  Consider these creative ways to save for your kids’ college.

One of the bedrock beliefs shared by most Hispanics/Latinos families – whether new to the U.S. or several generations along – is the power of education to transform their fortunes. That’s why, even when money is tight, they generally choose to put what they do have into sending their kids to better schools. In fact, a study by Merrill found that affluent Hispanics/Latinos largely share the belief that a traditional higher education is essential, not just for career success, but also as an important marker of community achievement. That may be part of the reason that Hispanic/Latino Americans aged 25–29 who have earned at least a bachelor’s degree more than doubled from 2000 to 2019. 

The Merrill study also found that Hispanic/Latino families cite paying for their children’s college education as one of their top financial stresses. That’s not surprising, when you consider the three-fold increase in tuition at four-year institutions between 1980 and 2020. Fortunately, there are things any family can do to prepare, even when you’re balancing your desire to support your children’s educational journey with other family priorities — all at the same time.

You don’t have to figure everything out right away. Getting started is more important than waiting to craft the perfect plan. As you do, these tips can help.


Look for tax advantages. One advantage of starting early is that you can leverage the power of compounding as your savings and investments grow. But when you use a 529 education savings plan, you get the added benefit of tax-free growth, tax-free withdrawals and, in some cases, tax-deductible contributions. Recent changes in how colleges determine financial aid also mean that grandparents can open a 529 plan for grandchildren without affecting the student’s eligibility for need-based aid. For those looking for tax advantages, a Roth IRA also offers penalty- and tax-free withdrawals for qualified higher education purposes, as long as certain requirements are met.

Empower your children so they can help, too. You may be familiar with Roth IRAs as a savings vehicle for retirement, but they can be used to cover qualified college costs, and you can help your child open one in their name as soon as they start earning income, perhaps from a summer gig or after-school job. Just be mindful that contributions can’t exceed the child’s total taxable compensation, and there’s an annual contribution limit of $6,000 for 2022. One other bonus of Roth IRAs is that they don’t have to be reported as assets when your child fills out the Free Application for Federal Student Aid (FAFSA) — so these funds won’t affect their aid eligibility until they are withdrawn.

Review your progress annually. There are many variables you can’t control. You may not be sure what college your child may ultimately attend, or how much it will charge for tuition. Just as with other aspects of your financial plan, because market conditions and life circumstances change, your approach to saving for college needs to regularly be reassessed and recalibrated, preferably annually. You may want to make small adjustments, as your children’s college plans firm up. And as they get closer to college, you won't want as much risk in the portfolio, because you're going to need that money soon.

Think creatively to fill the savings gap. Planning won’t necessarily mean having every single penny when tuition comes due. It should mean knowing roughly how much you might need, what percentage you’ll have saved, and where the rest could potentially come from. Of course, loans play a role even for many affluent parents, and you should consider the pros and cons of different options, whether a personal loan, a home equity line of credit, or a loan against your investments. But think beyond that. 

While private colleges and universities come with hefty tuitions, many state schools offer in-state students an excellent education at a fraction of the price. Another way to potentially save is if your child can accumulate enough credits to graduate a semester early. Scholarships, while they often come in smaller dollar amounts, can add up as well. And don’t forget about community colleges as a potentially lower-cost option. 

For more information, contact Merrill Financial Advisor Don P. Martone of the Hughes Landing officee at (281) 882-4818 or don.martone@ml.com.

 

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