According to the Education Data Initiative, enrolling in a U.S. college costs an average of $38,270 per student yearly. This amount covers tuition, supplies, and daily living expenses. For a 4-year course, you’d need to save between $108,584 and $234,512 — depending on whether it’s a public or private institution.
In honor of College Savings Month, Associate Financial Planner Damian Beard, CFP® shares his top tips to save (and pay) for college:
- Start early for maximum growth: The sooner you start contributing to a 529 College Savings plan, the more time your investments have to grow. Even small contributions over a long period can significantly accumulate thanks to compound interest.
- Choose the right plan: Each state offers its own 529 plan, but you don’t have to pick the one in your state of residence. Research various state plans to find one with lower fees, better investment options, or tax advantages.
- Take advantage of tax benefits: Contributions to a 529 plan grow tax-deferred, and withdrawals for qualified education expenses are tax free. Some states even offer tax deductions or credits for contributions, so check your state’s tax policies.
- Use funds for a wide range of expenses: While 529 plans are traditionally used for college expenses, you can now use them for
K-12 tuition, apprenticeships, and even student loan repayments (up to certain limits). Be sure to review the qualified expenses to avoid penalties.
- Adjust contributions as needed: Life circumstances change, so you may need to adjust how much you’re contributing. Some families contribute more when their income rises or reduce contributions during tighter financial periods. Many plans allow automatic monthly contributions, making it easier to stay on track.
- Make it a Collective Effort: If your 529 plan provides a shareable QR code or donation link, send it out to family and friends ahead of your child’s birthday or holiday shopping so they can contribute. For those who have an overflowing playroom and cringe at the thought of more toys, encourage others to donate the cost of the toy to the 529 plan.
- Set Up the Account Before Your Child or Grandchild is Born: Create a 529 plan with yourself listed as the beneficiary. Once your child or grandchild is born, change the beneficiary to their name. This is a simple way to take advantage of long-term compound interest. The beneficiary could be changed to other eligible family members, if desired.
Learning to view your child’s education funding as a strategic priority alongside other objectives, such as retirement savings and debt reduction, is critical in long-term financial planning, and can be effectively integrated into your broader monetary goals with the help of a financial planner. If you would like discuss college savings planning or any other financial planning topic, contact us online or call (515) 225-6000.