Don't Mess With Taxes

This time of year, my social media streams are full of photos of my friends' children as they head back to class. And it's not just the youngest students being celebrated.

Yes, I'm old enough to have peers with kids in college. While all these students' parents are proud of their progeny's new educational milestone, there's also a bittersweet tinge to all those Facebook postings of surprisingly grown up kids.

And, of course, there's the realization that this next phase of their youngsters' lives is going to cost them. In some cases, the costs will be a whoooooole lot.

Ever increasing college costs: The latest calculation from the wealth-management company Wealthfront finds that if college tuition keeps increasing at its current rate, it will take up to six figures to send a child born this year to a private college.

The actual figure for four years at a private university in 2036 comes to $302,700. That's up from $166,800 today.

A more affordable, but still pricey, alternative is four years at a public university. But even that expenses 18 years from now will be around $183,600, according to the Wealthfront analysis of data from the U.S. Department of Education's National Center for Education Statistics. That's $101,200 than today's cost.

Scholarships and grants, of course, could help offset some of those costs. So, parents, make sure your kids do their homework!

But the bottom line is that parents and their future college bound kids need to start saving. Now. And as much as they can.

Sharing the costs: I'm not the only one who views saving for continued, higher education as a team project.

Fidelity Investments' 2018 College Savings Indicator Study survey found that most parents (62 percent) plan to cover the majority of their children's college expenses, but not all of the expenses.

"As the cost of admission rises for college-bound kids, it becomes even more important for families to get in sync to meet their college savings goals," said Melissa Ridolfi, vice president of Retirement and College Products at Fidelity.

To cope with the rising costs, parents surveyed by Fidelity said they want their children to set aside a whopping average of $15,385 by high school graduation. That's up from the $12,431 savings goal in 2016.

Unfortunately, not enough parents are letting their kids know of these shared college cost plans, at least not early enough so that the youngsters can do something about it. Many of the parents aren't telling the young people of their expected college cost contributions until their sophomore year in high school.

"Without adequate time to save, kids may struggle to meet their parents' expectations," added Ridolfi. "Without adequate time to save, kids may struggle to meet their parents' expectations. By setting goals and having conversations earlier, parents can help their kids become better equipped to pick up some of the tab when the tuition bill arrives."

So that the transition to college will be affordable, smooth and produce even more great photos of college-bound kiddos, Fidelity and other financial advisors offer some basic recommendations for parents and their children.

Talk, talk, talk: Communicate early and continually about college goals, costs and how they will be met.

Ridolfi says Fidelity's latest college funding findings are a sobering wake-up call for parents to improve communications with their college-bound kids. She also noted the practical financial reason for the shared college cost perspective.

"It's no wonder parents today are more realistic about how much they can contribute to their kids' education, as nearly one in five are still struggling to pay off their own student debt while saving for retirement," said Ridolfi. "Expecting children to assume more responsibility for college costs makes sense, but the right time for the college talk is long before the first tuition bill is due."

Early communication also will help you avoid ending up in the fix recounted by NerdWallet financial expert Liz Weston.

"I recently heard from the parents of a yet another high school senior who turned down a huge scholarship from a good college to attend her 'dream school,' which of course has lousy financial aid. Now her parents are scrambling, trying to figure out how to pay for it," wrote Weston.

Her take on this and similar situations: "This madness must end."

Weston notes that she's not saying parents should ask their teenagers to pay the whole cost of a four-year college degree. That could send them into debt that could be "crippling, and students who try to pay for school entirely on their own are more likely to drop out," says Weston.

But the other extreme — parents totally paying for whatever college a kid wants to attend — isn't smart either.

"Setting limits and requiring a kid to pay at least part of the cost can actually lead to better grades while protecting parents' finances," says Weston.

Let the tax code help you save: Saving for college can be a family affair. And a tax-favored 529 plan is a good place to start.

Money invested in one of these plans, which are offered and administered by all 50 states and Washington, D.C., and named after the Internal Revenue Code section 529 that created them, grows tax-free. When it's time to head off to college, the 529 money can be withdrawn tax-free to pay qualified education expenses at accredited institutions. This includes expenses at colleges, universities, vocational schools and trade schools.

If a youngster opts for added education, 529 account money also can be used to pay for expenses associated with graduate school.

And if you want to help as your son or daughter is getting ready for college, changes under the Tax Cuts and Jobs Act allow up to $10,000 per year per beneficiary — that's the youngster for whom the account was opened — to be used tax-free to pay for elementary or high school tuition expenses.

Set up a savings system: Fidelity's survey found that 56 percent of families have a financial plan in place to help reach their college saving goals. Good move, since planning ahead is one of the keys to saving and investing successfully for any big goal, including college.

Starting saving for college as early as possible. A longer time frame for compounding will help you get closer to the six-digit figures college is likely to cost in the future.

But don't be scared off by the amount you'll need. Treat reaching your college fund goal like a like a monthly bill that's part of your family's budget.

*Assumes a 6% annual investment rate of return and continuous savings for 18 years. Your own account may earn more or less than this hypothetical example. For illustrative purposes only. (Graphic courtesy Fidelity Viewpoints)

And try to increase the amount you put toward it over time.

"For many families, finding an extra $50 or $100 per month may seem out of reach, but these extra dollars, consistently saved, could potentially boost college savings by nearly $20,000 to almost $40,000," said Ridolfi.

You also might find these items of interest:

• Giving thanks for educational tax breaks
• Learning about 529 education savings plan changes
• 8 ways the new tax law does — and doesn't — affect paying school costs