Just as time flies, saving for college can also fly – under the radar, that is. Maybe you’ve always had the intention to put away money for your child, but with one thing and another you still haven’t got started.
Actually, many parents are in the same boat. According to a Fidelity College Savings Indicator Survey, parents of 10th graders and beyond say they regret they did not:
- Save more each month.
- Open a 529 saving plan earlier.
- Treat contributions to a college fund like a monthly bill.
- Boost savings by one percent every year.
- Prioritize college savings over impulse buys.
- Open a cash-back credit card with rewards tied to a dedicated savings account.
If you share some of these regrets, you, too, might be a little disheartened. But you know what? The past is the past – you just need to start today. So, if you feel a bit behind here are some adjustments you can make right away to make up some of that lost time.
Open a 529 Savings Plan.
They’ve been proven to perform best over a period of a decade or more, but it may still be worth it. If you only have a few years left to contribute, you will naturally have a lower risk tolerance and should gear the plan with more conservative investments.
Consistently contribute as much as you can.
Whatever fund you decide to set up, the key is consistency. Contributions made from every paycheck quickly begin to add up. If you’re starting late, you’ll want to be as aggressive as possible.
Dedicate an additional income.
If you’re concerned that the amount you can save is just not going to accumulate quickly enough, you might look for temporary income that you can set aside entirely for the college fund. If only one spouse is working, maybe the other could take on some part-time work.
Definitely get your kids contributing.
Did you know that a national study conducted in 2012 by the University of California found a correlation between college students’ grades and how much they were contributing to the cost of their education? The more they paid, personally, the better their grades.
Set up a Roth IRA for them.
This would be funded by the students themselves. They can do so as long as they are working in the years that they make the contributions. The interest earned will remain in the account for retirement, but the contributions themselves may be withdrawn, free of tax and penalties, for college.
Look for streams of extra money.
For example, you’re going to be paying household bills anyway, so pay them all with a cash-back credit card. Make sure you pay off the balance every month so that you don’t incur interest, and have the cash rewards linked to your college savings account.
Consider an in-state school.
Most high school seniors have a preference for what colleges they’d like to attend. This preference is often influenced by peers and marketing. College costs have spiked, however, with private institutions charging up to $45,000-plus per year. The real difference in education and career placement between the more expensive out-of-state college and the closer one may not be worth the large difference in cost.
Take advantage of a community college for core subjects.
The first year of college is filled with core subjects and prerequisite classes. Many students choose to spend a year (or even two) at a local community college, and then transfer to a more expensive school. This can save a lot of money.
Make the most of higher education tax breaks.
The Hope Credit is available to taxpayers who have incurred expenses related to the first two years of post-secondary education. The Lifetime Learning Credit is available based on the first $10,000 in post-secondary education expenses paid during the tax year. Refer to IRS publication 970 to see if you qualify for these or other tax benefits related to education.