With five years to go before your final tuition bill is due, you can keep up to a fourth of your college account in conservative stock funds, but shift about half your money into a bond fund or "laddered" CDs so a portion matures each year. Move the money you need for next year's bill into a money-market fund. Repeat each year.
Calculate your expected family contribution again. If it looks as if you'll qualify for financial aid, try to lower the income included in the calculations -- by, say increasing your pre-tax contributions to a flexible spending account, if your employer offers it.
Line up loans. You won't know how much you'll need to borrow until you get the aid package from the college, which usually comes in April. If you don't qualify for a low-interest, need-based loan, you can apply for a PLUS loan (in your name) or a Stafford loan (in your child's name).
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
If you don't have a home-equity line of credit, apply for one well in advance of your first tuition payment. Home-equity lines charge the prime rate or prime plus one point, and the interest is usually tax-deductible if you itemize.
You can borrow 401(k) money at a moderate interest rate -- typically at prime plus one point, which you pay back into your account. You won't owe taxes on the loan as long as you repay it. Borrowing from a 401(k) is usually more expensive than student loans and home-equity loans -- especially when you consider how much you'll lose in earnings while the money isn't invested.
Sell on rallies. After your child starts college, look for market upswings to start selling your stocks or stock-fund shares. You don't want to be forced to sell during a market tumble to cover an impending tuition bill.
With Five Years to Go
Last Minute Ways to Ease the Pain
-
Take Charge of Retirement Spending With This Simple StrategyTo make sure you're in control of retirement spending, rather than the other way around, allocate funds to just three purposes: income, protection and legacy.
-
Here's How To Get Organized And Work For YourselfWhether you’re looking for a side gig or planning to start your own business, it has never been easier to strike out on your own. Here is our guide to navigating working for yourself.
-
COVID Hospitalization Rates See an Uptick As Winter Looms — The Kiplinger LetterThe Kiplinger Letter A new Omicron booster is available, but the elderly are still at risk and winter is right around the corner.
-
Will Weight-Loss Drugs Spike Medicare Costs?: The Kiplinger LetterEconomic Forecasts Lawmakers are trying to get weight-loss drugs like Wegovy covered by Medicare. Long-term savings are possible, but it could cost the program $27 billion.
-
Greenland, U.S. Plans to Boost Tourist Economy: Kiplinger Economic ForecastsEconomic Forecasts A U.S. congressional effort could see some Canadian visitors get longer stays, meanwhile, Greenland bids to be the next vacation hotspot.
-
Medicare Drug Price Negotiations Latest: Kiplinger Economic ForecastsEconomic Forecasts Medicare drug price negotiations: Early signs have emerged of how these key talks will be handled.
-
Forces That Affect Your Estate Planretirement From probate and ownership division to the taxing arm of Uncle Sam, here are four things that can influence what happens to your belongings.
-
Make a Plan for Your Retirement Savingsretirement The first step to effectively using your 401(k) is to assess your retirement needs.
-
What to Ask Before Buying an Annuityinsurance If more people understood these confusing products, fewer probably would be sold. Find out what you need to know.
-
Tapping Your IRA in Retirementretirement You can cash in your IRA all at once, but doing so could subject you to an enormous tax bill. You'll probably do better tax-wise by taking out as little as necessary each year.
