Is it ever too early to start saving for college? Is it ever too late? Finance experts say the answer to both questions is a resounding “no,” and an annual Gen Z & Money survey released by TD Ameritrade Holding Corporation (NYSE: AMTD) indicates that members of Generation Z are hearing the message loud and clear.
Many members of Gen Z (people born during the 1990s) are either already facing, or are on the verge of facing, their own college funding challenges. Head Research, on behalf of TD Ameritrade, Inc., surveyed 1,000 people, ages 14 to 23, regarding saving for college. Survey results and methodology are available online at www.amtd.com/newsroom/investorIndex.cfm.
“Many parents of Gen Z kids are still paying back loans for their own college education,” says Carrie Braxdale, managing director of investor services for TD Ameritrade, Inc. (TD Ameritrade), a broker dealer subsidiary of TD Ameritrade Holding Corporation. “Aware of their parents’ struggles, this young generation is concerned about the cost of college. Forty-six percent of those surveyed say their biggest post-graduation worry is having a large student loan balance, and 36 percent worry about being able to afford college at all.”
College costs continue to rise – more than 1,120 percent in the past 35 years, according to a Bloomberg report. The average student loan debt owed was $ 26,600 in 2011, according to the Institute for College Access & Success.
Still, Gen Z has no doubt the investment is worth the money. More than half (54 percent) say obtaining a higher education is critical to achieving success, and 64 percent agree college is worth the cost because it will help them secure employment, according to the TD Ameritrade survey.
“Parents who work with their children early to develop a financial plan and clearly set financial expectations can help better prepare them for financial success later in life,” Braxdale says. “And even if they start saving when their child is already in high school, they should remember that every dollar they save toward college now is a dollar less they will owe in student loans.”
Fortunately, a variety of college savings plans can help better prepare parents and their kids for the future, including:
* A 529 College Savings Plan – Usually administered through or sponsored by a state government, 529s offer several tax advantages. Earnings in the account are not subject to federal tax and withdrawals for qualified higher education expenses are generally free of state and federal taxes. Contributions are generally not tax deductible, but parents may be able to exclude 529 money from their taxable estate, making them a possible way to reduce one’s estate taxes while helping a child pay for college.
* Before investing in a 529 Plan, carefully consider the investment objectives, risks, charges and expenses involved. This and other important information regarding the plan is included in the Program Disclosure Statement and Participation Agreement and each prospectus on the underlying investments, which may be obtained by contacting the issuer. Please read each prospectus, the Program Disclosure Statement, and Participation Agreement carefully prior to investing. Investment return and principal value of an investment will fluctuate so that an investor’s units, when withdrawn, may be worth more or less than their original cost.
You should be aware that other states may sponsor their own qualified tuition plans and may offer a state tax deduction or other benefits that are limited to residents who invest in that plan. You should consult with your financial, tax or other advisor about state and local tax benefits or limitations based on your specific situation. Favorable tax treatment by your state of residence should be one of many appropriately weighted factors you should consider in making an investment decision.
* Coverdell Education Savings Accounts – In general, earnings and qualified withdrawals in an education savings account are federal tax free. While 529s are exclusively for college, you can use an ESA to help pay for elementary school, high school or college expenses. There are no minimum contribution requirements, and you can put up to $ 2,000 per child, per year into the account. Contributions are generally not tax deductible.
* Custodial accounts – A great way to build assets for children or loved ones, custodial accounts allow you to manage a minor’s assets and investments. The account will be in the child’s name and Social Security number, but it cannot be accessed until he or she reaches legal age. You act as guardian until the child is old enough and can assume control of the assets.
Braxdale offers some tips for creating a college investing strategy:
* Start early. Even a small amount set aside each month allows your money to start working for you long before the first tuition bill arrives.
* Set goals, including the total you want to have saved and how much you will save each year to reach that goal. TD Ameritrade’s College Planner can help with goal setting by helping project how much you’ll need to save to cover expected tuition costs.
* Choose an investing vehicle. Decide which type of college investing plan will best help you pursue your goal.
* Track your progress. Check regularly on your college investing accounts to see if you’re on track toward meeting your goals.
* Consult a qualified tax advisor. Every individual’s tax situation is different, so it is important to consider talking with a qualified tax advisor regarding the particular investment vehicle you choose. TD Ameritrade does not provide tax advice.
Keep in mind that there is no guarantee that the investment vehicle you choose will achieve its investment goals. The value of an account will go up or down based on the performance of the underlying investments. When funds are withdrawn, they may have more or less value than the total contributions made to the account.
Provided by: TD Ameritrade Holding Corporation, brokerage services provided by TD Ameritrade, Inc. member FINRA/SIPC /NFA.