After years of education and training, many physicians begin their careers with some hefty student loan debt. Once you become a parent, it can be intimidating to put money aside for your child’s education, especially if you’re still paying off your own.
Here are some ways you can save for college without derailing your own financial goals:
Prioritize Your Own Finances as a Physician Parent
First and foremost, as a physician parent, you need to prioritize your own finances first, particularly paying down debt and saving for retirement. There are loans, grants and scholarships for higher education, but not for retirement. So it’s important that you put yourself on a path toward success there first.
The quicker you’re able to pay off your debt and put a solid plan in place for your retirement, the sooner you can start funneling money toward your child’s education.
Look into 529 Plans
It’s tricky to save for college because you might not know exactly what your child will want to do, what kind of higher education they’ll pursue, or how much it’ll cost.
Fortunately, 529 plans are a fairly flexible savings vehicle, and they’ve added even more perks over the past couple of years. Those accounts aren’t subject to federal or state income taxes, and the earnings can be withdrawn tax-free as long as they are used for qualifying education expenses. You can also use 529 plans for up to $10,000 in qualified K-12 tuition expenses.
After the SECURE 2.0 Act became law in December 2022, it changed the 529 rules to allow beneficiaries to roll over up to $35,000 into a Roth IRA. There are some limitations with this rule: you have to follow Roth yearly contribution limits when you move that money over, and you can only move contributions that have been in an account for more than five years. But this change made the 529 Plan an even more attractive option, because it gives you or your student more freedom in how it’s used.
Nearly every state has their own 529 plan, but you don’t have to opt for your own state’s option. Some states offer investment options that might work better for you. The downside is that some of the 529 plans offer in-state tax deductions, so you’d have to review your options based on what’s most important to you.
Save for College as a Physician Parent with a High-Yield Savings Account
If you were still paying down debt when your kids were younger but you’re ready to save for college now, a high-yield savings account could be a good option.
These accounts offer higher interest rates on deposits, and they tend to pay much more than your standard savings account. It’s also a great short-term savings option, because it’s a low risk investment. You can also access the money whenever you need to, so you don’t need to save for a certain amount of time before you can withdraw funds.
The downfall is that these accounts don’t typically keep up with inflation, so if you have more time to save, you might want to look at other options.
However you choose to save, just make sure that saving for your children’s college education fits within the financial goals you have for yourself.
About Your Richest Life
At Your Richest Life, physician-focused financial planner Katie Brewer, CFP®, wants to help you build a successful financial future. For more information on the services offered, contact Katie today.
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