In today’s world, youth sports have become extremely competitive that we often forget about the developmental process or our players having fun. Parents often invest a lot of money in club fees, traveling expenses, uniforms, tournaments and private coaching in the hopes to get an athletic scholarship later on when college time arrives. Unfortunately, this strategy only works for less than 2% of the student-athletes. Also there are a lot of other factors that can easily influence college coaches on such decisions.
If your son or daughter is playing sports and you want a TRUE ROI (Return on Your Investment), it’s best to support and release your players to the coach, club and the game. That’s what truly will help your child grow and develop to the best of his or her ability. The more pressure we put on them, the more they will hate the game in the long run. If something is not FUN, I am not sure why everyone will do it. If you commit to a sport, just make sure you finish the season no matter how hard it gets.
How To Save For College?
The best way to save for college is to open up a 529 Plan as early on as possible. Over time that will build a safety financial nest for your kids to attend and pay for college. Your don’t want to see your kids with high student loans because some of us parents and coaches are still working on paying ours. It’s not FUN.
The key is to start early and small but always be persistent. As time goes on, increase the money you put in without touching it because time will fly by and your son or daughter will be in college before you know it. Any amount helps and if you plan early you will see the major benefits.
Research has shown that children with a college saving account in their name, were six times as likely to attend college compared to those without an account. Also, the amount of money in the account didn’t matter as the main focus was on the expectations of just having one and the small and consistent contributions after that.
Saving is one source of money for college which in my opinion is the safest one because you know the money is there. The chances of your student-athlete getting a full scholarship are less than 2% and that’s a high goal that many don’t achieve.
There are a large number of merit scholarships, financial aid, work study, student loans and tax credit that enable American students to attend college. According to the U.S. Department of Education, National Center for Education Statistics, Fast Facts: Back to School Statistics 2015, that number was over 21 million students.
How $25 Per Week Can Add Up In The Long Run
Let’s say for example that Bob and Mary start saving for their son Alex as soon as he’s born. They decide to save $25/week thru Mary’s payroll deduction. By the time Alex is going to college, their account has grown more than $40,000 assuming a 6% average annual return. It doesn’t sound like a lot of money but that’s way better than nothing. That could cover the cost for two years of college for an in-state school. Bob and Mary decide to pay for one more year from their savings and Alex will have to pay his final year of grad school.
This is a simple example that emphasized on the power of planning, saving early and paying for college. The more money a family can save, the better. If Alex has good academic grades, he will qualify for more scholarship so at the end he could graduate without any student loans.
This example is way more realistic than seeing Alex obtaining an athletic scholarship. If he gets one, great and I am sure the whole family will celebrate. But if he doesn’t, no big disappointment as life will go on. It’s like giving without expecting anything in return. Playing sports will teach Alex lifetime values and how to survive in life and society. Sports will build his character and make him a great individual who will help serve others with his passion. Whatever that passion will be.
What Options Do We Have To Save
1. 529 College Saving Plan
There is no secret that the 529 plans are the clear favorite among college savers because they offer two potential tax benefits:
When you save – Many states allow college savers to deduct contributions to a 529 plan.
When you spend – If the money is spent on qualifying college expenses, you don’t owe federal or state taxes on 529 withdrawals. That makes every dollar go farther and with time you can see great results.
2. Coverdell Education Savings Accounts
According to Vanguard, Coverdell contributions aren’t tax-deductible, and the maximum yearly contribution of $2,000 per child limits their value for college.
But unlike 529s, you can spend the money on elementary and secondary education. This has given the Coverdell a following among parents sending children to private schools.
3. Roth IRA
Not too long ago I just open a Roth IRA for my retirement plan. It was very simple and the key is to keep on saving for the next 20-30 years. I know, it seems like it’s a long time but we rather be prepared than not. Those are the small steps that can make a big difference in the long run. Plus the power of the compound interest can really have a positive effect on your long term savings.
Please keep in mind that Roth IRA contributions can be withdrawn at any time without taxes or penalty. So contributions can be spent on college instead of retirement. But earnings cannot be withdrawn tax- and penalty-free unless the account is open at least five years and the owner has turned age 59½. That age restriction can limit the utility of a Roth IRA when paying college costs.
4. UGMA/UTMA Accounts
The Uniform Gift to Minor Act (UGMA) and Uniform Transfers to Minors Act (UTMA) allow you to save money in the name of a child. Initially at least, the child’s tax rate may be lower than the parents’. Please consider that because the money is treated as the child’s asset, these accounts can reduce financial aid and scholarship offers. This may not be the ideal plan for you but it’s something to consider as well.
Everyone needs and possibilities are different but a 529 college savings plan is a must in my opinion for every family. Don’t hope for the scholarship, just hope you can save more. One day you will be thankful if the scholarship is not there. And if it is, you will just embrace it with more joy.
How To Choose The Right 529 Plan
There are so many 529 plans to choose from and it’s never easy to make a big decision like this. But there is a simple reasoning of where to start. You should start with your state’s 529 plan.
Why You Should Look Beyond Your State’s 529 Plan?
Some state 529 plans charge loads or have higher fees. Those higher costs might outweigh the benefit of a state tax deduction. Other states allow a deduction for contributions made to any 529 plan. If so, you might broaden your research to find a top-rated, low-cost 529 plan offered nationally. With a bit of research you can save more money in the long run.
Please be aware of the service fees, tax deductions, cancelations fees, penalty fees, early withdrawls fees and everything in between.
Those are the basics of the 529 College Saving plan and I hope you start to save early for your children. Choosing sports as a vehicle to pay for college is the wrong strategy and I don’t want you to create that kind of pressure on your players. Saving early and wisely in a 529 plan is far a better and safer approach that can pay tremendously in the long run.
Sports will teach our players about character, respect, commitment, sportsmanship, how to fail, compete and survive in college and life. The 529 college early savings plan will give them that college opportunity and the lifetime experience.
Now it’s all in your hands and please remember that’s never too late to start. Just start small and slowly increase your savings as you go. Forget about the money you save and one day you will see why. A lot of parents I meet and had their kids in high school or college, had advised me the same: Save now and open a 529 Plan for your kids. It will pay off big time in the future.