Most children who plan to attend college won't get a full-ride from scholarships and grants. But there are smart ways you can save and prepare for college costs.
According to Mike Hensley, managing partner of Guardian Capital Advisors, the key to saving for college is to start budgeting for it early.
“We know how important college is. It's a necessity these days,” said Hensley.
Hensley says the North Carolina 529 plan is an excellent option for parents who want to help their children with higher education because it focuses on college education.
“They are state sponsored plans and states partner up with different mutual fund companies,” said Hensley. “I think 529 Plan offers the best overall advantages from tax savings to investments to the use of the funds.”
Hensley compares the plan to a 401k plan.
“You're able to use the earnings at any qualified institution in the U.S. If you're resident of North Carolina and you use the NC 529 Plan, there's actually a state plan deduction for your contributions,” Hensley said.
And Hensley says the sooner you can fund your 529 plan for your kids, the better.
“It's the time value of that interest that you might build, the earnings on the investments, capital appreciation, so the more of that you can get that's tax deferred and tax free when you take it out the better,” Hensley said.
For those who haven't planned and saved for college costs, it's not too late. There are options for both parents and their children.
“Children can work. They can get student loans; they can get grants, scholarships, or pay as you go,” said Hensley.
But if your child does earn a scholarship for school and there's money left in the 529 Plan account, the owner can take a distribution out, but have to pay a penalty of 10 percent on the earnings plus income taxes.
If the child is the owner, they may be in a lower tax bracket and the penalty would not be as big. There is also the option to roll that money into another 529 plan for another child without a penalty.