Saving for School

The cost of college continues to rise, making it more important than ever for parents to start saving for a child’s education as early as possible. Remember, in addition to tuition costs, students need to plan ahead for college living expenses. Find out how much with our College Living Expenses tool. A variety of savings programs designed specifically for education expenses makes it easier, safer and more enticing to sock away birthday money or contribute a few dollars each month. And even if tuition expenses are right around the corner, there are options for investing or supplementing your current income.

Start Early

It’s never too early to start saving for a college education. The longer the time frame between today and the day your child starts college, the longer your money has time to grow. And the earlier you start, the smaller the ‘dent’ you’ll have to place in your monthly budget to achieve your savings goal. As soon as you bring your bundle of joy home, start putting away as much as you comfortably can. There are many safe, convenient ways to save; some of which offer significant tax benefits*.

• 529 Savings Plans are sponsored by state governments and educational institutions. The dollars you save in the plan are invested on your child(ren)'s behalf, much like a 401(k) or IRA. Also like 401(k)s or IRAs, some 529 Plans may perform better than others and your balance can go up and down with the market. As your investment grows, capital gains, dividends and interest are tax deferred until you need the funds.
  
  You don’t have to invest in a 529 plan offered by your state, but the state may offer tax or other incentives if you do. Shop around to see what plan has the features and benefits that will best meet your needs. Some features to compare include:
  • Eligibility for the plan
  • Maximum or minimum contributions
  • Account maintenance or application fees
  • Tax deductions or credits
  • Account ownership and distribution options
  
  
• Coverdell Education Savings Accounts used to be called Education IRAs. Contributions in a Coverdell account also grow tax-deferred, but contributions cannot exceed $2,000 a year per beneficiary. Even stricter limits may apply depending on a contributor’s Modified Adjusted Gross Income. Distributions are tax free as long as they are used for qualified education expenses.
• Investment Portfolios of any type can be used to help grow your education savings. However, it’s a good idea to work directly with an investment advisor for this savings strategy. He or she can help you find a safe mix of investments designed to achieve the rate of growth you desire while managing portfolio risk as the time to draw on that money grows closer.
• Certificates of Deposit or CDs come in many varieties giving you ideal options for short and medium-term saving. While CDs aren’t a high-yield investment, they all come with a minimum guaranteed rate of return, making them extremely safe. Some CDs pay variable rates based on market fluctuations, so if the market does well, your CD could grow even more than the minimum you anticipated without the downward risk when you invest in stocks.

Whatever savings or investment plans you choose, starting early can really pay off. Find out more about Investments to Use When Saving for College.

If you start saving $50 a month when your child is born, assuming a conservative 6 percent rate of return, you could have nearly $20,000 when he or she turns 18.

Interactive College Planner

What will college cost for your kids? Get an estimate with our Interactive College Planner.

Supplement Your Savings

When it comes to pulling together the resources necessary to pay for school, every little bit helps. Beyond savings, here are two ways to build up funds.

1. Get a Job

Teens who help pay some of their own education expenses may take college more seriously while also developing a better appreciation for money. Even if Mom and Dad have saved enough to cover tuition, a summer job or part time work during the school year can help a teen pay for trips home, books, and off-campus dining. If a part time job makes sense for your child, work with them to set goals about what they do with their wages. Establish a minimum amount they should save from each paycheck and help them open a savings account or CD to put that money to work.

2. Spend to Save

You also can save for college by spending. Brand loyalty programs like UPromise and BabyMint reward you for shopping at certain stores, buying specific products and eating at designated restaurants. Program partners will contribute a portion of what you spend to an account. You can then transfer those funds to a college savings plan or ask for a check.

To qualify for many of the rewards, you will need to pay with a credit card that has been registered to your UPromise or BabyMint account. To help increase the impact of loyalty program savings, you can invite grandparents, relatives and friends to join the program on your child’s behalf.

* Consult your tax advisor.