Empty your nest, not your savings: 5 tips when saving for college

Building a healthier financial life, means striking a balance between living for today, while preparing for tomorrow.

You may have multiple savings goals and as your priorities change, it is good to know how best to save for the things that matter most, without sacrificing your own financial future. Here are five tips to help you save for your child’s college.

The cost of college

According to a U.S. News annual survey[1], the average cost of tuition and fees can range from nearly $10,000 to upwards of $35,000. And those costs are increasing every year. Not to mention the often overlooked expenses including books and room and board. Like any goal, determining how much you need and when will help you plan. You want to consider things like how many children you have, which schools they are likely to attend and when. To estimate projected costs, you can start with a comprehensive college savings calculator that will guide you and include all of the costs associated with college. Next, look into other options to help reduce your costs.

Bridge the cost of college

As you plan your savings timeline, you may find you have a college savings gap. To bridge that gap, see if you are eligible for tax credits and funding assistance such as financial aid and loans. You can also set up savings funds like the tax-free Coverdell Education Savings Accounts and 529 Plans. Family members can contribute to savings for your child with the Uniform Gifts to Minors Act that allows for financial gifts to minors up to $14,000 – all of which can offset your shortfall. While we suggest you look into all of the above, you may want to choose to start early with a 529 Plan.

Open a 529 early

Although a 529 Plan is not without some restrictions and fees, this state-sponsored, tax deferred college savings plan is flexible and could save you more over time. These investment plans offer tax-deferral savings and income tax-free withdrawals for qualified college expenses. Some states even allow you to deduct contributions from state income taxes. The earlier you open one, the faster for long-term potential savings growth. Consider the following ways your family and friends can help fund a 529 or any other college savings investments, including a Coverdell Education savings account.

Encourage family to gift savings

You can encourage help from family and friends. Ask them to gift an amount to your child’s college fund rather than buying toys or gifts for birthdays or holidays. Over time, their contributions can add up.  

Encourage kids to contribute to college

It is also important to include and encourage your child to save and invest in their future. Asking your child to contribute in small ways to their own college fund will help them learn the value of money, the importance of saving and may become invested in their own education when the time comes. Remember, building savings takes time. As you look for more ways to save for college, be sure to budget for all of your competing savings goals. Be sure to save early and save often, so you can provide for your loved ones, and live the life you’ve envisioned.

 

Sources:
US News - Explore the Costs of Attending College, September 2017
Voya College Savings Calculator
20 Something Finance - What if I want to be a Custodian for a Non-IRA Account? An Intro to UGMA/UTMA Accounts January 2018