8. Not having a college funding strategy.

The biggest mistakes are 1) not starting to save early and 2) prioritizing college saving over retirement.

Step one of creating a college funding strategy is to start saving (in a tax efficient way), to the extent you can. Most people approach the college search from a “safety, target, reach” framework. Think about which schools are a “financial safety school” and which are a “reach” that would require scholarships.

The college search can be a buyer’s market. Smaller colleges offer merit scholarships to attract students who otherwise would attend “brand name” schools. — Melissa Sotudeh, CFP, director of advisory services, Halpern Financial, Rockville, Maryland

7. Not asking what the child wants.

[Clients] were about to take a personal private company loan to cover the costs of an expensive college. [But] after several discussions, we determined the child did not even want to go to this school, which was his father’s choice. It turned out that a good trade school would cover the child’s needs and be less expensive.

It took a lot of discussion, but eventually the father gave in. A few years later the “child” graduated from the school with a good, inexpensive education and became an electrician. Today he is well-respected at his job and gets lots of referrals. Even his dad uses him at his own house. — Jon L. Ten Haagen, CFP, Ten Haagen Financial Group, Huntington, New York

6. Pulling money from retirement plans.

A single mother had not done any real college savings planning for her two children and one was getting ready to apply to schools so she was looking at ways to pay. Obviously, it was late in the game and her idea was to just withdraw money from her federal Thrift Savings Plan account to cover the education expenses. … I explained to her that although there was an exception on tax penalties for withdrawals for educational purposes, that was not the best way to go about it for her own retirement security.

Her children [ended up going] to community college for two years, and in Virginia with a high enough GPA in community college, you get guaranteed admission to a state university. She took a modest loan from her TSP account for the first year of school and began an aggressive Virginia 529 plan savings program. Between that and some scholarship money, she did not have to take out more loans and was able to pay back the TSP loan early while continuing to maximize her contributions. — George F. Reilly, J.D.,CFP, Safe Harbor Financial Advisors, Historic Occoquan, Virginia

5. Missing state deductions for a 529 plan.

A new client had made over $4,000 in contributions to their child’s Georgia 529 plan ... but had neglected to deduct the contributions on their state tax return. Luckily, we were able to correct this before they filed and because they were in the highest bracket of 6%, this saved them $240 at tax time. These are hard-dollar tax savings taxpayers miss every year, and over 18-plus years these savings can add up. — Andrew Langdon, CFP, FivePoints Financial Planning, Peachtree City, Georgia

4. Saving in a high-cost 529 plan.

One of our clients was funding a 529 plan for their child on a monthly basis. In addition to the annual administration charge and investment fund expense of over 1%, they were incurring an almost 5% sales charge on every contribution!

High fees can significantly reduce the value of a 529 plan over time, leaving less assets available for tuition. Per our recommendation, the client transferred the assets to a low-cost 529 provider that offered better funds and service for a fraction of the cost with no ongoing charge for contributions. — AnnaMarie Mock, CFP, Highland Financial Advisors, Wayne, New Jersey


3. Investing in a 529 plan in the wrong state.

[It’s true that] if there are no state tax incentives for using the local 529, investors may be better off using another state’s plan with lower fees or more appropriate investments.

[But] I once had a client that set up an account with the Texas Tuition Promise Fund — a 529 plan that allows participants to prepay tuition for Texas state schools. However, the client’s grandchild lived out of state and was not likely to attend a state school in Texas.

In this case we were able to help him roll the account to a more appropriate plan from another state without tax or penalty. — Jonathan H. Swanburg, CFP, Tri-Star Group, Houston, Texas

2. Jeopardizing aid through bad 529 plan management.

One blunder I’ve personally seen has to do with grandparent-owned 529s. The timing of distributions, if taken too soon from these plans, can have an adverse effect on expected family contributions and the students’ aid eligibility. Also, I have seen grandparents change the ownership of these plans to their children for the benefit of the grandchildren, which essentially takes assets that would not have been factored into the EFC at all, if timed properly, to one that will now be assessed at the parent’s rate. — Mike J. Henzes, CFP, Open Wealth Network, Pottstown, Pennsylvania

1. Playing catch-up with a 529 plan.

We had a client who kept pushing out opening and funding a 529 for their daughter and then wanted to know the quickest way to make up for lost years of contributions. We let them know that they could “jump-start” their 529 using a unique tax law that allows couples to contribute/ front-load five years’ worth of contributions or $150,000! (individuals are allowed $75,000!) — Trevor Scotto, CPA, CFP, CDFA, principal & co-founder, Fiduciary Financial Group, Walnut Creek, California

Saving for college is a struggle for many a young family. Children have more immediate needs as they grow, and college seems so far in the future (about 18 years). We asked several advisors about the mistakes clients have made in saving, or not, for college and how they set it right.

With the ever-rising cost of continuing education, many families still find it overwhelming. But there’s a process, our advisors say, and avoiding these mistakes can help families save for college. Check out the gallery to see what eight advisors said.

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