Understanding proper investment selection is crucial to making sure a college education stays within reasonable reach as well as using accounts that are meant to combat inflation. I don’t know what it is about us (especially men) that we insist on going against the flow of things. But there’ll be one who insists on non-traditional investments for their child’s college account for every ten families I do college planning with. Over the years, I’ve seen everything from people planting timber to be harvested when their child goes to college to someone trying to corner the market on a certain baseball player’s rookie card. Don’t get me wrong. Although they are not the place for your child’s education fund, these may be fun and unique investments when part of a much larger investment portfolio. Besides the fact that most of these investments seem to backfire as often as not, they also lose the tax-advantaged status other college accounts enjoy. Stick with the straight and narrow with less than twenty years until you’re going to need your college funds.  Choose simple investments that get the job done and avoid investments never meant for college planning.

More about college planning mistakes

The cost and expenses of most mutual funds and unfortunately section 529 plan seem to require an advanced degree in math to understand. Making sure your investments are cost-efficient is crucial to ensuring your long-term growth while t might be tempting to overlook this aspect of college planning. An extra 2% in fees may decrease a portfolio’s ending value by up to 50% over a 20-year period while it may not seem like it has a huge effect. Excessive fees, even on a well-performing portfolio, can greatly increase the amount you’ll have to save to reach your unique college planning goals. As a college account for your child, you can earmark virtually any type of account, from a checking account at your bank to a Roth IRA. Unfortunately though, not all of these accounts are created equal. The exact same mutual fund bought in one type of account may be subject to greater taxation than if bought in another account. One account may hurt your chances of financial aid 4-5 times more than another, likewise. The second most traumatic college planning mistake many parents make, is using their existing retirement funds to pay for college. Many parents take distributions or loans from their company’s 401k or other retirement plan, usually to avoid taking out student loans in other words. Many parents also fail to continue saving into their 401ks or IRA’s during the college years to add insult to injury. What makes this mistake so huge is the fact that most parents typically do this somewhere between age 40 and 60. That leaves a painfully short amount of time to make up the depleted funds before retirement kicks in for mom and dad. They don’t realize until it is too late, that borrowing against their retirement actually postpones it for 5-10 years for many parents.