Roxana Maddahi shares her financial advice for women investing in their children’s future.
Q: I am always reading about college tuition increasing rapidly. Is this the case?
A: Unfortunately, the cost of college is getting more expensive each year, and we don’t see that it will slow down any time soon. Currently, the average cost of tuition at Private Colleges is approximately $38,000 per year. The center for financial aid has calculated that that figure will be approximately $90,000 by 2025, just 10 years from now. That’s almost $360,000 for a 4 year education. Inflation generally increases by 1% per year, which means that the value of our money goes down about 1% per year, but college tuition inflates at a much higher rate, going up an average of 2.2% per year.
Q: What are the best practices for saving for college?
A: One of the best ways to ease some of the burden when your child goes to college is to save early, and to use a 529 college savings plan. A 529 plan is a tax advantaged way to save for child’s tuition. It allows you to invest after-tax money into a savings account, and the growth in the account is tax free, saving all of the federal capital gains tax. State tax laws vary, so you should consult with your tax advisor.
Q: What are the advantages of using a 529 plan rather than saving on your own?
A: Tax Benefits – you are exempt from capital gains tax on your investments.
Flexibility – anyone can contribute (grandmother, aunt, parents, friends) and it can be used for any type of secondary education (college, graduate degree).
Control – you can retain control or you can change the beneficiary
Q: What is the easiest way to set up a 529 plan?
A: A 529 plan takes a few minutes to set up and to make financial contributions to. I suggest reaching out to your financial advisor in order to help you pick the best plan for you and your family. At Morgan Stanley, we have a robust platform of 529 plans from some of the nation’s leading mutual fund companies. You can also contact me for guidance on your specific situation. I am very passionate about helping families plan for education. There are also a lot of resources on the internet that can walk you through the steps.
Q: How much do you need to save in order to reach these numbers?
A: It varies depending on how much time you have, and on performance of your investments.
6. As a parent, what can you do if your child is nearing college age and has not saved anything?
My first suggestion regarding saving for anything, whether it is retirement, college, etc, is to get a financial advisor that understands your needs and have them help you to make a financial plan. I do this for all of my clients, and you will find that there are many ways to be creative in order to fund education, retirement, or big purchases. A financial plan will give you the clarity you need in order to have confidence in your financial decisions.
Roxana Maddahi is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Los Angeles. The information contained in this broadcast is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. Investing involves risks and there is always the potential of losing money when you invest. Morgan Stanley and its Financial Advisors do not provide tax or legal advice. Individuals should seek advice based on their particular circumstances from an independent tax advisor.
The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.