College planning starts earlier than you think: A guide for financial advisors

Bringing home a new baby changes almost everything.

<<This article was first published by Franklin Templeton>>

Your schedule changes. Your priorities change. Your budget certainly changes. It’s also one of life’s biggest financial game-plan milestones.

When people think about preparing for a growing family, their minds often go to immediate needs: diapers, daycare, pediatrician visits and perhaps a larger home. Looking years down the road to college or retirement can feel less urgent.

But the early years often present some of the best opportunities to build a strong financial foundation – and that includes planning for future education expenses.

Rather than thinking about college and retirement planning as separate decisions, use this milestone as an opportunity to step back and see how they fit together.

College planning starts with a strong financial foundation

Saving for college is important, but it shouldn’t happen in isolation.

The arrival of a child is an opportunity to review beneficiary designations, insurance coverage, retirement savings and emergency reserves. It’s worth confirming that your investment strategy still reflects your family’s goals and changing priorities.

The strongest college savings strategy is one that’s built on a solid financial foundation.

Start early – and let time do some of the work

College may seem a lifetime away when your child is still learning to crawl, but time can be one of the greatest advantages families have.

Beginning to save early may give investments more time to benefit from compounding and multiple market cycles. Even modest, consistent contributions can provide greater flexibility than waiting until college is just around the corner.

Education savings doesn’t have to be all or nothing. Starting with manageable contributions and increasing them over time can help families pursue long-term goals while balancing today’s priorities.

College is one goal among many

New parents quickly discover there’s no shortage of financial priorities. Should extra income go toward retirement? College? Paying down debt? Building an emergency fund?

For most families, the answer is all of them.

A thoughtful financial game plan recognizes that these priorities are interconnected. Finding the right balance is often more important than maximizing any single goal.

529 plans form the foundation

With good reason, a 529 plan is often the first account people think of for college savings. Given the tax benefits and flexibility options in how savings can be used, the 529 plan should be at the core of a well-designed college savings strategy.

There are other options to consider as well. Depending on your family’s goals, custodial accounts, Roth IRAs and taxable investment accounts may also play a role. Each offers different tax characteristics, ownership rules and levels of flexibility, making it important to understand how they fit within your overall financial strategy.

The right approach will vary from family to family. The key is developing a strategy that reflects your goals, timeline and broader financial plan.

College planning is also about preparing your children

One of the most overlooked aspects of college planning has nothing to do with investment accounts.

As children grow, parents can begin introducing simple financial concepts such as saving, spending and giving. Encouraging children to save a portion of birthday money or understand the value of delayed gratification can help build healthy financial habits that last well beyond graduation.

Preparing for college isn’t just about paying tuition. It’s also about helping children develop the financial confidence they’ll carry into adulthood.

The best time to start is earlier than you think

No one can predict exactly what college will cost – or what higher education will look like – 10 or 20 years from now.

What families can control is when they begin planning. Starting early creates flexibility as circumstances evolve, giving families more opportunities to adapt while working toward long-term education goals. Sometimes one of the best planning tools isn’t a particular savings vehicle – it’s simply time.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal.

Any information, statement or opinion set forth herein is general in nature, is not directed to or based on the financial situation or needs of any particular investor, and does not constitute, and should not be construed as investment advice, forecast of future events, a guarantee of future results, or a recommendation with respect to any particular security or investment strategy or type of retirement account. Investors seeking financial advice regarding the appropriateness of investing in any securities or investment strategies should consult their financial professional.

Franklin Templeton, its affiliated companies, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.