College Savings Month

Not only does September showcase back-to-school season, but it’s also home to College Savings Month! Each year, September encourages children, parents, relatives, and other guardians to learn more about college costs. A college education can be costly, so it’s important to consider the pros and cons of higher education to prepare for the future.

When kids are set up with a growing college savings fund, they are 2.5 times more likely to enroll and graduate from college than kids without a college fund. On average, your college savings goal for a public, in-state college is recommended to be $60,400.[1] That number may seem disheartening, but there are ways to break it down to a more achievable goal.

• 529 Plans or Qualified Tuition Programs are tax-advantaged investment plans that work similarly to a Roth IRA. A 529 Plan offers tax-free growth and tax-free withdrawal. However, you can only use this account for tuition costs. 
• Coverdell Education Savings Accounts (ESA) are tax-deferred trust savings accounts. These accounts help lower-income families save money for their child or grandchild’s higher education. Each year, you are allowed to invest up to $2,000. The Coverdell ESA can be used for tuition and other school expenses. 
• The One-Third Rule is based on the idea that few people will pay for a major expense in one large sum. Instead, many people spread out the cost over time. The One-Third rule combines savings, current income, and loans. One-third of the cost comes from existing savings, one-third from current income, and one-third is paid using a loan. Remember that you don’t need to pay the total cost of college. Some families use the One-Third rule to pay one-third of the cost per child. 
• Start Early when it comes to saving for college. The earlier you start, the more you will benefit from compounding interest.
• Communicate with your kids. It helps to have an open conversation with your kids about what you are willing to do to help and ways they can pitch in. 

This article covers just some of the ways to begin saving for your child’s college education. A conversation with a financial professional can help you identify specific tools and services to help you pursue your goals.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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 inly 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 max vary. Please consult with your tax advisor before investing.

 [1] HerMoney.com, November 4, 2021