Millions of Americans are looking for the best long-term roadmap for saving for college. So, what is the best course of action to plan for future education costs?
Robert “Bob” Powell and Ross Riskin, Investments & Wealth Institute Chief Learning Officer, discuss the importance of early savings for educational expenses, open communication around financial contributions, the best vehicles for education saving, and more in this week’s episode of Decoding Retirement.
Saving early for education costs (1:20)
There are many factors to be aware of in order to prepare for education costs properly.
“Maybe there are grandparents, maybe there’s an uncle who didn’t have any kids, but they’re well-off, and they want to contribute to their nieces and nephews, college education, and then the kind of the school itself. Later, when we get into the process of applying to schools, are they going to qualify for need-based aid, merit-based aid? So understanding that early on helps us build a more accurate plan of how much do we actually need to save.”
Multi-vehicle savings approach (8:00)
There are many options when deciding what type of account to use for education savings… and it’s a good idea to use more than one!
“I’m not putting everything into 529 or everything into a brokerage account or use some other product or solution. You want to have flexibility with where things are going from an education standpoint of maybe what you think you want to plan for higher education, it may change or may be different there and you want to use those funds earlier. You want to have flexibility in what you can use to help you reach those goals as maybe the the mileposts move around a little bit on some of those goals.”
Ask Bob: Contributing to a spousal IRA (23:00)
Question:
What do I need to know when contributing to a spousal IRA?
Answer:
“Each spouse can make a contribution up to the current limit. However, the total of your combined contributions can’t be more than the taxable compensation reported on your joint return. If you file a joint return, you may be able to contribute to an IRA, even if you didn’t have taxable compensation as long as your spouse did. Read IRS publication 590-A for more about that.”
If you’ve got questions about money or retirement, email us at AskBob@yahoofinance.com.
Video highlights:
0:45 – Saving early for education costs
3:30 – How to have the difficult conversation with family members contributing to educational savings
5:30 – How to select the best vehicle to use when saving for education
10:05 – The best way to balance saving for both retirement and education
