For college costs, save with a 529 plan

This was originally published on Monday, June 10, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My oldest son will be going off to college in four years. Do you have any ideas on how to prepare our finances for his college?

Answer: College is not getting any cheaper. In fact, costs for college continue to rise every year. Polls now show that concerns for paying for children’s education are rising over retirement concerns.

Here are several questions you should answer to help you get an idea of how much you may need to set aside:

• Where does your child plan to go to school? Many colleges charge out-of-state tuition up to the second year of college. What’s the cost of living for that area? Some places like California or Hawaii are more expensive than, say, Arizona or South Dakota.

• Where does your child plan to live while in college?

Some schools require that students live on campus for the first two years. Will he be getting an apartment? Will she be looking for roommates? If your student plans on living off campus, think about the cost of running two households.

• What type of college does your child plan on attending?

A traditional four-year college, a two-year overseas college, or a community college? Tuitions vary greatly among the different types of institutions.

• How much do you plan on paying?

Does your child have a grant or scholarship that may help with tuition or books? Or are you going to be the sole provider paying for 100 percent of the cost? If your child decides to go past a bachelor’s degree, do you plan on paying for further education?

Starting early

Of course, starting as soon as possible is the key. The earlier you start, the more time your money has to grow. It’s less expensive to save for college expenses than to borrow for them.

Although you may be setting aside the same amount of money monthly, when you save you earn interest. When you borrow, you pay interest.

Even if college may be one or two years away, you still can start saving.

There are tax benefits to saving in a Section 529 college-savings plan or prepaid tuition plan. Every dollar saved is a dollar you will not have to borrow. Remember, you don’t have to pay the education up front; you may have several years to do so.

A Section 529 plan is available in almost all areas. Plans and their rules vary by state.

In some cases, you don’t even have to be a resident of the state to take advantage of the plan. In fact, you can have multiple 529 plans in multiple states.

To learn more about Section 529 plans, go to the Internal Revenue Service website at

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and with financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at and read past columns at the Money Matters blog at



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