College Savings & 529 Plans Expert Advice and Tools to Help Maximize Your Savings Potential

Meet the Experts
expert
Deborah Fox

Deborah Fox has been a financial advisor in San Diego, CA for over 25 years and is known as one of the leading college funding experts in the country. She founded Fox College Funding LLC to help guide families through the complexities of college funding strategies and applying for college financial aid. Her company provides comprehensive college funding planning services nationwide. Fox also provides advanced college planning continuing education to financial advisors and tax professionals through Fox College Funding Academy.

expert
Steve Stanganelli, CFP

Steve Stanganelli is a Certified Financial Planner and principal of Clear View Wealth Advisors, LLC and CollegeCashPro.com, an independent fee-for-service financial planning and investment advisory firm. Steve has specialized training in college funding and retirement planning issues and provides innovative financial and tax strategies that help families save on the cost of college while protecting their retirement goals.

Kids and money: two great stressors for parents everywhere. Put together, the effect can be overwhelming, such as when parents ask themselves the all-important question: “How are we going to pay for college?” This is certainly understandable. According to a 2015 survey by T. Rowe Price, parents were almost perfectly divided as to which was more important: saving for retirement, or saving for their child’s college education.

General parent understanding of college savings strategies remains surprisingly lacking. Many parents are all too aware the cost of attending college stretches the pocketbook and grows year-over-year. And though 89 percent of parents expect their children to attend college, only about 48 percent are actively saving to pay for it. This guide aims to remedy that, wherever you stand in the savings game.

Why Aren’t Parents Saving?

Why don’t you regularly set aside money for your kids’ college education?

Map
  • Two-thirds of those who are not saving for their kids’ college education say they can’t afford to
  • Of those parents who say they can’t afford to save for there kids’ college education, over one-quarter save for vacation, and over half give allowance

Source: T. Rowe Price: “7th Annual Parents, Kids & Money Survey” (2015)

Introduction to College Savings Plans

Spending a little time running numbers through the collage savings calculator above can be a sobering experience, especially if there are multiple children heading swiftly toward high school graduation. To avoid such a cold slap in the face, parents need to start the college savings process as early as possible. Even putting away just a small amount each month, particularly when starting out early, can have a huge positive impact on future college costs:

5 Years
  • $50 per month $3,599.94
  • $100 per month $7,199.08
  • $250 per month $17,997,70
10 Years
  • $50 per month $8,499.40
  • $100 per month $16,998.80
  • $250 per month $42,496.99
15 Years
  • $50 per month $15,266.26
  • $100 per month $30,526.51
  • $250 per month $76,316.28
18 Years
  • $50 per month $20,501.10
  • $100 per month $41,002.20
  • $250 per month $102,505.50

*Figures calculated using an annual 6.5% interest rate compounded quarterly

The above figures represent savings in its simplest form, the type that an individual would see by putting money away in a basic bank savings account. Effective saving for college, however, requires a more comprehensive strategy and at the foundation of most college savings strategies is some type of formal college savings plan. For many savers, a college savings plan means one thing: a 529 program. It’s important, however, to know that as popular and important as 529 plans are, there are other choices out there that can be employed as alternatives to, or in combination with, a 529 college savings program.

Compare Savings Plans

The following chart offers an overall look at the requirements, advantages and disadvantages to the most common types of college savings plans and instruments.

529 College Savings Plans

Who can open and control account?

Anyone can open a 529 account and name anyone as beneficiary. Control remains with contributor

Cost of Opening Account

Varies by state and plan

Contribution Limit

Limits (both annual and total) vary by plan, but cannot exceed amount necessary to provide for the qualified education expenses of the beneficiary

Can Named Beneficiary Be Changed?

Yes. There are not tax consequences if you change the beneficiary to another member of the same family

Beneficiary Age Limit

No age limit.

College Expenses Covered

Varies by plan, but generally covers tuition, fees, and room and board, and other qualified expenses

Federal Tax Advantages

Earnings are not subject to federal tax when used for qualified purposes. Contributions are not tax deductable, but earnings in the account grow tax-deferred

State Tax Advantages

Vary by state. Tax deductions for contributions are allowed in some states. Most provide tax-free earnings growth and qualified withdrawals

Age By Which Funds Must Be Used

Varies by state

Penalty for Non-Qualified Withdrawals

Taxed as ordinary income and subject to 10% penalty

529 Prepaid Tuition Plans

Who can open and control account?

Anyone can open a plan. Control generally remains with the contributor

Cost of Opening Account

Varies by plan

Contribution Limit

Varies by specific plan contract

Can Named Beneficiary Be Changed?

Generally yes, but may be limited by the specific plan’s terms

Beneficiary Age Limit

Age limits may or may not be set by specific plan

College Expenses Covered

May vary by plan, but generally only tuition and mandatory fees are covered

Federal Tax Advantages

Earnings are not subject to federal tax when used for qualified purposes. Contributions are not tax deductable, but earnings in the account grow tax-deferred

State Tax Advantages

Vary by state. Tax deductions for contributions are allowed in some states. Most provide tax-free earnings growth and qualified withdrawals

Age By Which Funds Must Be Used

Varies by plan.

Penalty for Non-Qualified Withdrawals

Taxed as ordinary income and subject to 10% penalty

Coverdell ESAs

Who can open and control account?

Adults can open. Contributor maintains control, but any withdrawals must be made for the benefit of the beneficiary

Cost of Opening Account

Varies by plan

Contribution Limit

$2,000 per student, per year

Can Named Beneficiary Be Changed?

Generally, the named beneficiary can be changed without tax consequences if the new beneficiary a member of the same family as the original beneficiary

Beneficiary Age Limit

No contributions can be made once the beneficiary reaches the age of 18. No age limit for special needs children

College Expenses Covered

Qualified expenses such as tuition, fees, room and board, and supplies

Federal Tax Advantages

Earnings grow tax-deferred within the account. Withdrawals are tax-free if used for qualified educations expenses

State Tax Advantages

None

Age By Which Funds Must Be Used

Withdrawals must be made before the beneficiary turns 30. No age limit if used for special needs beneficiary

Penalty for Non-Qualified Withdrawals

Withdrawals made beyond the beneficiary’s annual education expenses may be subject to taxes and penalties

Roth IRAs

Who can open and control account?

Anyone can open a Roth IRA subject to income limit restrictions.Control remains with the account holder.

Cost of Opening Account

Typically requires a minimum $2,500 annual contribution.

Contribution Limit

Annual contribution limits determined by the IRS. Current contributor limits: $5,500 (under 50 years of age); $6,500 (over 50 years of age)

Can Named Beneficiary Be Changed?

Not applicable

Beneficiary Age Limit

No limit

College Expenses Covered

Generally covers tuition, fees, and room and board, and other qualified expenses

Federal Tax Advantages

Qualified distributions are exempt from Federal income tax. Withdrawals are tax-free

State Tax Advantages

Availability and type of advantages varies by state

Age By Which Funds Must Be Used

Funds can be withdrawn without penalty if made after 59.5 years of age or five years after first contribution to the account, whichever is later

Penalty for Non-Qualified Withdrawals

Assets can be used by the contributor for retirement if not used by the student for education expenses.Taxable for unqualified withdrawals. Portion withdrawn before 59.5 years of age subject to 10% penalty

UGMA/UTMA
Custodial Accounts

Who can open and control account?

Control remains with the custodian account, strictly for the benefit of the named beneficiary, until the beneficiary reaches majority

Cost of Opening Account

None

Contribution Limit

No limit

Can Named Beneficiary Be Changed?

No. Transfer into account is an irrevocable gift to the beneficiary

Beneficiary Age Limit

Custodianship terminates and control of assets transferred to child/beneficiary at 18 for UGMA accounts, 21 for UTMA accounts

College Expenses Covered

No restrictions. Not limited to education-related expenses

Federal Tax Advantages

First $1,000 in earnings and gains is tax-exempt. Next $1,000 taxed at child/beneficiary’s rate. Over $2,000 taxed at parent’s rate.Transfers treated as gifts for Federal Gift Tax purposes.

State Tax Advantages

None

Age By Which Funds Must Be Used

Not applicable

Penalty for Non-Qualified Withdrawals

None

U.S. Government Bonds

Who can open and control account?

Adults can purchase. Control remains with contributor

Cost of Opening Account

Cost of savings bond

Contribution Limit

No limit

Can Named Beneficiary Be Changed?

Beneficiary can be changed without tax consequences, although permission by the named beneficiary to make change may be required with older bonds.

Beneficiary Age Limit

None

College Expenses Covered

Generally limited to tuition and mandatory fees

Federal Tax Advantages

Interest grows tax-deferred. Withdrawals for qualified education expenses are tax-free

State Tax Advantages

In most cases, interest is tax-exempt from state taxes

Age By Which Funds Must Be Used

No limit

Penalty for Non-Qualified Withdrawals

Interest is taxed as ordinary income

529 Plans

One of the best ways to help save for higher education expenses is through the use of a 529 plan. 529 plans are tax-advantaged accounts specifically designed for paying college expenses. They allow the account holder to invest in any state’s plan and the beneficiary to use the funds at nearly any accredited higher educational institution in the country. There are two primary types of 529 savings plans: 529 College Savings Plans and 529 Prepaid Tuition Plans, and on or both types of plans are currently offered in all 50 states, with the exception of Wyoming and in the District of Columbia. Although most plans follow the same general outline, there are variations in plans from one state to another. It is important, therefore, to compare all plans offered by a person’s home state, as well as by other states, in order to determine which is best for a student’s specific college funding needs and educational goals.

The best time to establish a 529 savings plan is sooner rather than later. This will allow a longer time horizon for funds to grow, and the more time you allow for contributions before the beneficiary attends college, the smaller the individual contribution amounts need to be in order to produce the same overall financial impact.

Eligibility

According to the Internal Revenue Service, anyone may set up a 529 savings plan, and practically anyone can contribute to the plan on behalf of the account’s designated beneficiary. This means that family, friends, acquaintances, and even the beneficiary may all make contributions. There are, however, certain participation rules that vary by state. For example, some states limit plan establishment to only residents of that particular state. Check the eligibility rules of all plans under consideration before investing.

Additionally, anyone may be named as the beneficiary of a 529 plan, including the account holder him or herself. Account beneficiaries are typically current or future students for whom the 529 savings plan is intended to provide benefits. There may only be one beneficiary designated per 529 plan account, but more than one 529 plan may be established by an individual. And, unlike certain types of retirement accounts, there are no income restrictions placed on the account holder or the beneficiary in terms of establishing a 529 plan.

529 Plan Advantages

Tax Advantages. Although contributions to a 529 plan are not tax deductible, the funds within the account are allowed to grow on a tax-deferred basis. Distributions made to the account beneficiary for qualifying expenses come out of the account federal tax-free. Most states offer similar tax-deferred growth and tax-free withdrawals for qualified expenses, and some states allow income tax deductions to plan contributors for the full or a partial amounts of their contributions.

It’s important to note here that contributions to 529 plans are considered gifts. The current gift tax exemption for individuals is $14,000 ($28,000 per couple), so contributions to a 529 plan exceeding that amount are subject to taxation. During the first year of a 529 plan, however, up to five times the amount of the gift tax limit – or $70,000 ($14,000 x 5) – may be contributed and treated as if the contribution were made over a five-year time period for gift tax purposes.

Control and Flexibility. 529 plans remain under the control of the person who established the account, not the beneficiary, at all times. Therefore, the account owner maintains a great deal of control over how the money is invested, when and how it is withdrawn, and in most cases may even change the named beneficiary. Funds that go unused by the named beneficiary, for example, may be transferred to another person within the same family without losing their tax benefits.

529 plans are also flexible in regard to where the funds can be used. In most cases, funds can be used at colleges and universities, even trade schools, throughout the U.S. (and sometimes overseas) regardless of the specific plan or state in which the plan originates. Terms of plans do differ, though, so potential investors are well advised to pay careful attention to the details of a plan before signing up.

Low Impact on Other Financial Aid. Because the funds inside a 529 plan are considered to be parental assets, the amount is factored into federal financial aid formulas at a maximum rate of approximately 5.6%. This means that only this percentage of the 529 plan’s assets will be included in the Expected Family Contribution that is calculated in the federal financial aid process.

Low Minimum and High Maximum Limits. Again, maximum limits are plan-specific, but most allow total contributions of $300,000 to $400,000. At the other end of the spectrum, plans often have minimum contribution requirements as low as $25 to $50 per month.

529 College Savings Plans

529 College Savings Plans are similar to IRA or 401(k) retirement savings plans in that the funds in the account can be invested in a variety of different financial vehicles. Account values will rise and fall based on the performance of the underlying investments within the plan. There are two basic types of college savings plans: Direct and Advisor. Direct plans allow account owners to pick and choose how the funds are invested. Advisor plans employ financial firms to pick the contents of the plan’s portfolio. Normally, money contributions are invested in large, widely-held mutual funds, with the account owner able to pick from among two or more portfolio mix options. In most cases, portfolio mixes are age-based, that is, they start out with higher-risk, higher-return stocks, and are slowly converted to less risky bond and cash heavy mixes as the student reaches college age.

529 College Savings Plans typically come with a number of fees, such as advisor fees, program management and administration fees, and underlying investment fees. The total fee costs of plans can vary significantly and should be weighed against benefits when comparing different plans and options.

529 Prepaid Tuition Plans

Prepaid tuition plans allow the prepayment of part or all of the future costs of an in-state public college. They may be either state- or institution-sponsored. There is also currently one private, not-for-profit prepaid tuition plan available. The major benefit of prepaid tuition plans, along with tax benefits similar to those of college savings plans, is that they remove much of the market volatility from the equation. That’s because credits purchased through a prepaid tuition plan today can be redeemed years later, when the beneficiary is off to college, with the same value power as when they were purchased.

Prepaid tuition plans often have less flexibility when it comes to what college expenses are covered when compared to college savings plans. Funds are typically limited to tuition costs and mandatory fees. As you probably expect at this point, terms vary, sometimes significantly, from plan to plan, so be sure to read a plan’s contract carefully before investing.

Opening a 529 Account

There are two primary ways to establish a 529 plan. One method is to open an account directly via a state’s college savings program website. Each state (with the exception of Wyoming) offers online information regarding how to both research and select a plan, as well as an enrollment checklist and account forms.

Accounts may also be opened through a financial advisor. There are many financial professionals who specialize in these types of plans and can directly answer any questions regarding plan establishment, contributions, and withdrawals.

Beyond the 529: Other Types of Savings Plans

While 529 plans are considered the most popular and, for many, the first choice in saving for a college education, they are far from the only choice. Below are four other common options employed to effectively save for college. They may be considered as alternatives to 529 plans or used in combination with them to optimize savings efficiency.

Coverdell Education Savings Accounts. A Coverdell Education Savings Account (or Coverdell ESA) is another tax-advantaged account designed to encourage saving for education. Like 529 plans, Coverdell ESAs allow tax-deferred growth of funds and tax-free withdrawals for qualified education purposes. Unlike 529 plans, funds in a Coverdell ESA can be used for qualified elementary and secondary school expenses, as well as for college. Contributions are limited to $2,000 per year.

U.S. Government Bonds. Government bonds, particularly U.S. Savings Bonds, can be utilized for college savings and provide a safe investment with modest returns. The U.S. Treasury’s Education Bond Program permits qualified taxpayers to exclude from their gross income all or a portion of the interest earned on the redemption of eligible Series EE and Series I bonds. Proceeds must be used to pay for tuition and other educational expenses incurred at certain post-secondary institutions in order for the income exclusion to apply. Income limitations may also apply.

“Savings bonds can be a good option. However, if the bonds are bought by parents on behalf of their child, they need to be careful if the family wants to qualify for any need-based financial aid because, by the federal formula, 20 percent of any assets in the child’s name are considered to be available to use to pay for college that year. So it could significantly reduce their financial aid award.”

Deborah Fox

UGMA/UTMA Custodial Accounts. UGMA and UTMA accounts are custodial accounts that allow individuals to donate financial gifts to minors for many purposes, including higher education expenses. Accounts are set up in the child/beneficiary’s name. Transfers into the account are permanent, but the custodian maintains control of the account until the beneficiary reaches majority and ownership transfers to him or her. UGMA and UTMA accounts benefit the contributor, primarily in regard to estate taxes, but they may have a significant negative effect on the child/beneficiary’s ability to obtain college financial aid.

“Custodial accounts are fine for families that will not qualify for need-based aid because they are considered a student asset in the financial aid formula. The positive is that the parent or whoever is opening the account retains control of those funds in regard to how those funds are invested. However, actually depositing funds into a custodial account is considered to be a completed gift, so once those funds are gifted, the person who is contributing cannot change their mind and take those funds back.”

Deborah Fox

Roth IRAs. A Roth IRA is a tax-advantaged individual retirement account than can, under the right circumstances, be used to fund a college education. The major advantages to using a Roth IRA to pay for college are: 1) Distributions from the account can be withdrawn for any purpose, including paying for a child’s college expenses, 100 percent tax and penalty free as long as the distributions are made after the account holder turns 59.5 years of age (and the holder has had an IRA for more than five years); 2) The contents of the Roth IRA are not counted toward the student’s Expected Family Contribution when determining eligibility for other financial aid; and 3) Account funds not used for education may be used by the holder for retirement purposes without unwanted tax problems.

Top Expert Tips & Strategies

In a recent interview, Steve Stanganelli, certified financial planner and expert in college funding and financial planning, offered the followings tips and advice to parents and others interested in planning and saving for a college education.

1
College Credit While In High School

“If your student can take any type of AP tests while still in high school, it could eliminate one, maybe two, semesters. One semester is conceivably worth $20,000 in some schools.”

2
529 Plans

“I recommend going directly to the state sponsors and buying it without having to go through the broker, so that you have more money going into the fund and compounding over time. Also, look at the costs of the plan and the expenses of the underlying mutual funds used. There are very few things in life that you control and one of them is your expenses. I also like flexibility. Some plans have a higher minimum like $500 or $1,000. On other plans, you can start off with a zero minimum or very low amount, or if you get into an auto investment program, they waive the minimums. Those are the ones you really want to look at because, once you start it, you will have an incentive to continue.”

3
529 Plan Investing

“A simple, direct way would be an age-based program where the account owner is utilizing the investment company to create their mix of funds drawn from the menu; you’ll probably have more stocks vs. bonds for younger students and then more bonds and cash as the student ages. You are adjusting the glide path almost automatically as the child gets closer to the time when you start dealing with disbursements.”

4
529 Plans and Relatives

“Normally, the best way for a relative to help pay for college is going out and getting a 529 in his or her name and contributing money to it over time. This does not preclude mom or dad from starting a 529 plan and having it in their name. They can still do that and I would certainly recommend that they do. This is an important consideration since accounts not owned directly by the parents or the students are not counted in the financial aid formulas.”

5
Pre-Paid Tuition Plans

“They are fine if you can get them. States are running into the same problems that insurance companies have run into when it comes to assumptions about costs in the future, so you are seeing pre-paid tuition plans being recalculated going forward with less generous benefits. I’ve heard people say that even 529 programs have their drawbacks with performance and that they are expensive. But in either case, it’s tax-free money and I’m in favor of tax-free money.”

6
Alternate Savings Plans

“If you are looking at a time horizon of fifteen-plus years, you can then look at alternatives like insurance. I’m not talking here about the Gerber type plans because those things perform well for the company but not so great for the kids. If you have a cash-value life insurance policy, parents may be able to draw the cash out to pay for college. With a 529 plan, if the child decides not to go to school or is fortunate to have their college costs covered in full, the funds in a 529 account can languish (unless you can name a different beneficiary). With cash-value life insurance, the funds can be used for other things. There’s no requirement that you pull it out for any specific reason, whereas with the 529 you pay taxes on it if you pull funds out for some non-education related reason.”

7
Fill Out the Financial Aid Form No Matter What

“One mistake a lot of people make is that they say to themselves, “I make too much money, so I’m not going to fill out the financial aid form.” That’s the number one most unintelligent thing a person can do because the schools won’t give you any aid at all. Even if you know that you aren’t going to qualify for need-based aid, that doesn’t mean you don’t do planning. By not filling out that form, you are not going to be considered for anything on that campus.”

8
Get Expert Help

“Another thing I talk to folks about are things that they can do with the expected family contribution. The formulas are in many ways as complicated as doing a tax return. You can do it yourself, but given the statistics that one out of seven financial aid forms submitted has an error, and that an error can conceivably mean potentially thousands of dollars worth of aid lost or additional loans needed, it’s a good idea to bring somebody in to help you prepare the financial aid forms properly to maximize the aid you can possibly get.”

9
Find the Best Fit

“I had a client that looked at a variety of private schools. Their daughter was a gifted singer. The school she chose gave her a $5,000 scholarship to join their chorus. The other schools didn’t offer her a scholarship. The point is that if you have something the school wants, they will find a way to lower the sticker price.”

10
Check Special Rate Policies

“There are some schools that guarantee that their rates will not go up during your student’s attendance; that tuition will not be inflation-adjusted year over year. They may increase their rates when the next class comes in, but then the rate is held steady for four years. In such a case, that conceivably saves the student five percent every year compounded, where most other schools would have gone up. Also, you should check to see if there are any incentives for more than one child from the same family attending the same school. Some schools do offer special discounts.”

11
Do Not Consider Only the Sticker Price

“The funny part is that in actuality, people tend to self-select out based on the sticker price. The reality is, though, that many private schools will cost the same or less money than the public school in-state tuition that they might be looking at. Also, many schools are looking for diversity [in their student population] and will reach out to students that may otherwise be considered disadvantaged and give those students extra money. And we’re not talking about loan aid. We’re talking about grants in the form of discounts off the price or scholarships that bring the price down.”

12
Don’t Rely On Financial Aid Officers

“The problem with financial aid officers at schools is they may know some things, but they are certainly not privy to your particular financial situation. Even if you were comfortable sharing that information with them, they would probably not know what to do with it. As for the financial aid officer at a college, their job is to get you signed up to get the federal government then to send money to the school in the form of student loans that you’ll likely be getting. And they also do not know anything about your financial situation. The only ones who know about your situation are you and your financial planner.”

13
Contributions by Others

“Do you have any relatives that are planning on contributing? Why is this important? Because you have an estate planning opportunity for them. For example grandparents could fund as much as $200, $250, $300,000 to pay for college through a 529 plan. Of course, not everyone is that lucky. But even for those not blessed with very rich relatives, it’s still worth asking the question because sometimes well-meaning relatives do something, like paying the college directly or cash to the student directly, that factors into financial aid calculations and jeopardizes the possibility of getting financial aid.”

Just for Parents: 5 More Top Tips

  • Intention and Vision

    “The first thing that I would find out is if there is any specific intention that the parents have; what’s their vision for their child’s education. Some families have legacy issues. Your dad went to Dartmouth, your granddad went to Dartmouth, you’re going to Dartmouth come hell or high water. They may not have a specific school in mind, or specific study subject, but they should have a general idea of where they’re targeting: private versus public, local versus far away, big campus versus small.”

  • Determine How Much Of the College Costs the Family Will Be Paying For

    “Next, I would certainly ask [parents] what their expectation is for paying for college. If you expect to pay for 100 percent of the cost regardless of where the student goes, that’s the goal and we now know what we have to do. Today, though, the amount contributed by families for a child’s education is around 15 to 20 percent based on cash-flow. This doesn’t count loans and certainly not mortgage refinances or home equity loans. The average 529 account usually covers one year’s worth of college costs.”

  • The Student and Financial Planning for College

    “I recommend that parents bring their kids in for at least one meeting about the money. Explain to them, ‘This is how much it costs. You can take this path and go to this school, and it will cost X. And it may leave you with this much money in debt.’ You have to have that conversation. And for those who are unclear about a field of study or career direction, I recommend that they utilize self-assessment tools to help narrow the choices down. If a student ends up switching majors, he could end up delaying graduation which ends up costing more money and more loans.”

  • Saving On Taxes

    “It’s not always about how much money you’re going to get for school, it’s about how much money it’s costing you. Period. If I save you $10,000 a year in taxes, isn’t that like getting $10,000 off the college costs? You can create your own ‘tax scholarships’ with some proper planning. With those who own a business or an investment property, there are a range of things you can do. Maybe you invest more in your business or real estate and buy that piece of equipment or do that expensive repair in your base year. Maybe you start that side-line business that you always wanted especially since start-up companies tend to generate losses that lower the income used to calculate financial aid. Maybe you can transfer assets like low-basis stock that will be subject to a high capital gains tax to your student who’s in a lower tax bracket.”

  • Business Owners and Investment Property Owners

    “For business owners and investment property owners, the flexibility of planning increases: you can take money that would otherwise be taxable profit for you and your business, and pay your child who is in a lower tax-bracket. Skip the allowance and pay your kid. You can also fund a Roth IRA for your kid, so now the asset is off-the-books, not counted in financial aid formulas, and your income tax liability is lower.”

  • Late-Stage Planning

    “What I tell folks is that it is never too early and it’s never too late to plan for college, it’s just that the options are different. If you are coming into this at a late stage, the student is a 16- or 17-year-old, your ability to save for college is pretty much behind you. The later you start means you have to focus on ways that lower the total dollars you spend or need to borrow. The strategies you can work on to provide a positive return to you come in the form of tax strategies, cash-flow strategies, what kinds of loans to use, how to move assets, how they are titled. For example, you can retitle bank or asset accounts held in the student’s name to the parents since parental assets are assessed at a lower rate than those held in the name of the student. All of these things have nothing to do with which 529 plan is the best, nothing to do with investment.”

“The first piece of advice every parent should take is to start saving as early as possible even of if feels like you can’t afford it. That’s because it is so important to harness the power of compounded earnings over time. It can make a huge difference in how much an account can grow in value.”

Deborah Fox

Why is important to start early with a college savings plan? Start with the fact that the average four-year undergraduate degree program beginning in 18 years is estimated to cost (tuition, fees and other costs) around $200,000 for a public school and $400,000 for a private school. The only way to realistically come close to paying that kind of money is to start accumulating funds on a regular basis about the time a child first enters nursery school. In other words, through the power of compounded interest, even relatively small amounts of money invested each month can add up to a substantial sum over the long-term. The key here is that it will take a long period of time, but the resulting benefit could make the difference between attending a great college and not attending college at all.

“There’s more to this than saving for college, a lot has to do with saving on college.”

Steve Stanganelli

There are numerous plans and strategies that can be employed to get started, many outlined in this guide. The most important factor, though, is to start as early as possible, stick to a set plan and invest in that plan regularly and consistently.

“If [parents] don’t set up a disciplined process of savings, it’s not going to happen because there is always some other financial concern that will present itself and cause that college savings goal to be put on the back-burner. They need to set up a method to make a contribution into their account each month automatically so that they build in the discipline to work toward achieving their goal.”

Deborah Fox

Resources & Help

Resources for Everyone

College Savings and Financing Resources: Financial Literacy & Education Commission

U.S. Department of the Treasury

Federal Student Aid: Funding Your Education Guide

U.S. Department of Education

Federal Student Aid: Getting a Late Start? Last-Minute Checklist

U.S. Department of Education

Paying for College: Learn about Financial Aid, Scholarships and FAFSA

Provided by The College Board

Saving for College: FINRA.org

Informative site provided by the Financial Industry Regulatory Authority

Paying for College

From the Consumer Financial Protection Bureau

Tax Benefits for Education

Internal Revenue Service

The Smart Guide to Financial Aid

From FinAid!

TreasuryDirect: Education Planning

Information on Savings Bonds and Education Tax Exclusions from the Department of the Treasury

Uniform Transfers to Minors Act

Information on the UGMA and UTMA from the Social Security Administration

Resources for Parents

529 Plans: Questions and Answers

Internal Revenue Service

Federal Student Aid: Resources for Parents

U.S. Department of Education

Saving for College:5 Strategies for Parents

Advice from Merrill Lynch

Saving for Education – 529 Plans: Investor.gov

Information on 529 Plans from the Securities and Exchange Commission

Savings Resources for Parents: Ready. Save. Grow.

From the Department of the Treasury