If you have a child, you may want to read the recent analysis from the Brookings Institute which details just how expensive raising kids can be. It’s downright frightening.
According to the Brookings Institute analysis, the average amount a married, middle-income couple with two children would spend to raise through age 17 is estimated to be $310,605.
That's over $18,000 a year, a 9% increase from the previous estimate due to inflation. Again, that $18,000 per year is per child. Have more than 1 child? Multiply your number of children by $18,000.
More Than $300k Per Child
The analysis states that child-raising costs can vary greatly based on where you live and on the number and ages of children in a household. For example, housing costs are greater in the urban Northeast, urban West and urban South, while lower in the urban Midwest and rural areas.
And as family size increases, costs per child generally decrease. But the analysis makes it abundantly clear – raising children is expensive no matter where you live.
And inflation has made it worse.
That is Before College Costs
This analysis does not, however, include costs related to college. Today, the average cost for college, which includes tuition, room and board, and supplies is:
- $54,800 for private colleges;
- $44,150 for public out-of-state students; and
- $27,330 for public in-state colleges.
529 college savings plans are state-sponsored investment accounts that offer two distinct tax advantages:
- The potential for earnings to grow free of federal income tax; and
- The opportunity for withdrawals to be made free of federal income tax, if funds are used for qualified education expenses, such as tuition, fees, room, and board. Certain state taxes may apply, though. Nonqualified withdrawals may be subject to a 10% federal income tax penalty.
Contribution limits vary by state, and in many states exceed $300,000. While contributors are not eligible for any federal income tax deductions, some states allow for certain state income tax deductions.
Investment options will vary by plan, but they often include a selection of mutual funds. Generally, diversification – a strategy used to manage risk and maximize potential earnings – of the portfolio’s assets is based on the beneficiary’s age or number of years until the beneficiary begins college.
The Importance of Your Financial Professional
The cost of raising children is just one of dozens of variables to discuss during the financial planning process. Other variables include your tolerance for risk, your age, marital status, household income, household expenses, tax liabilities, number of dependents and most importantly, your specific goals.
And just as your household will change from year to year, remember to make sure you review and change your financial planning documents as necessary.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Investing in mutual funds involves risk, including possible loss of principal.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by FMeX.
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