Too little, too late? No such thing. One of the best ways to prepare for college in one, two, or even 18 years is with college savings.
If you think it’s too early to start, it’s not. If you’re afraid you missed the boat, you haven’t. Just starting really does make all the difference. Luckily, you’re not alone. We can help you do just that with these five college savings tips.
1. Crunch the numbers
A crystal ball is just another paperweight. No one can predict the future. But with the right information and guidance, you can get close. We know college tuition has increased a lot over the last several decades. So, it’s fair to assume it will continue to trend upward.
But planning to save “a lot” isn’t helpful. You need actual numbers to set goals. That’s where a tuition calculator can help. It takes your child’s college enrollment year (and a few other data points) and estimates the cost of tuition based on an average rate of tuition increase. The Private College 529 calculator [link] even lets users estimate tuition at any of the plan’s nearly 300 colleges.
Use the calculator as a starting point — to see into the future as best you can. Keep in mind that college expenses include more than tuition, so make sure your savings cover room and board and other miscellaneous costs. Whatever number you get is an estimate. But it still gives you a good idea of what tuition could look like when it’s time for college.
2. Make sure where you’re saving makes sense for what you’re saving for
There are plenty of places to save money for college — basic checking, traditional savings, and brokerage accounts, just to name a few. But the most cost-effective way to save is with a 529 account. And there are plenty of reasons why:
- Most state-sponsored 529 plans offer tax deductions or credits.
- Withdrawals are never taxed when used for qualified education expenses.*
- You control the funds in the account.
- Since a 529 can be either a savings plan or a prepaid tuition plan, you choose what works best, or you can open both plans together!
Your kids won’t always be in diapers or braces.
3. Look for opportunity in your own backyard
Life goes through changes, and some of the expenses we have today might disappear. Your kids won’t always be in diapers or braces. When life changes, consider shifting some or all of that money to college savings.
Recently promoted? Receive a tax refund? Inheritance? That money can also help pad a college savings account. It’s money well spent!
4. Shift to cruise control
Forgetfulness, procrastination, hesitation — many things can keep money out of a college savings account and keep you away from your goal. Remove these factors by automating what you contribute every month, a few times a year, or annually. This will put you on a schedule and ensure you’re saving even when you don’t remember to.
5. Get it gift wrapped — sort of
529 contributions make a great gift. Family members will welcome the opportunity to give, and parents will appreciate the gesture. It’s a win-win.
From birthdays and holidays to graduations and aced tests, there are plenty of opportunities for 529 gifting. Check your account to see how gifting works. For instance, Private College 529 Plan lets you create e-gifting events and easily send invitations to family and friends.
Gifting is a smart strategy to introduce anytime. Start a new family tradition today!
*Earnings in 529 plans are not subject to federal tax and, in most cases, not subject to state tax if withdrawals are used for eligible college expenses, such as tuition and room and board. However, if you withdraw money from a 529 plan and do not use it for an eligible college expense, it will generally be subject to a 10% federal tax penalty on earnings in the account.