Saving for college
Paying for college is a challenge for most families, but that doesn’t mean it can’t be done. Here are some savings suggestions for making higher education part of your budget.
The Sooner the Better
The beauty of compounding interest means it’s never too early to start saving up. Seriously. If you can manage to save even small amounts each month while your children are young, you’ll be rewarded with big returns come their high school graduation.
Make Saving Automatic
Saving early has its merits, but so does saving often. Try setting up automatic contributions from your bank account to make it easier to save every month. If you get a raise at work, remember to bump up the amount you’re saving proportionally in order to hit your savings goals quicker.
Find the Right Option For You
From 529 Plans to ESAs to Custodial Accounts – you have a number of options to choose from. Even a standard savings account can get the job done.
These state-sponsored accounts allow your unlimited contributions to grow tax-free, and you can make tax-free withdrawals as well, presuming they’re used to pay for eligible college expenses.
Coverdell Education Savings Accounts (ESAs)
Contributions and withdrawals from ESAs are also tax-free, however contributions are limited to $2,000 a year per child. Unlike 529 Plans, withdrawals from ESAs can be used for K-12 or college education expenses.
Custodial accounts, managed on a child’s behalf by their parent or guardian, are the most flexible option with no limits on contributions or how withdrawals can be spent. This flexibility can be a blessing or a curse, as the child can decide whether or not to spend the funds on their education once they turn 18. It is also worth noting that funds in custodial accounts do count against FAFSA income and may limit financial aid potential.
Save, Borrow or Both
Sometimes it’s just not feasible or realistic to save enough to cover 100% of your child’s college expenses. When the time comes, you may need to supplement your savings with FAFSA or explore student loans. If you go the latter route, don’t forget that First Tech can help your child with refinancing their student loans at a low, fixed rate.