It’s no secret that each year the cost of college increases. In fact, a 2019 study from the Center on Budget and Policy Priorities notes that the cost of college has increased by 25 percent in the past ten years. 1
A tax-advantaged college savings account, or 529 plan, can help you take action and alleviate your worries. A 529 plan is intended to help students pay for college expenses. Money in a 529 college savings plan has tax advantages, is professionally managed, and may benefit from the power of compounded growth. A variety of investment options are designed to meet your needs, situation, and risk tolerance. Parents, loved ones, or even friends can set them up quite easily and at any time in a child’s life, from birth to elementary school to high school. It’s never too early and it’s never too late to start.
Here are a few tips for how you can set college savings goals and stick to them in 2021 and beyond.
- Make a Budget
Do you ever wonder where your money goes each month? We all share the basic requirements of food, shelter and clothing. Some have car payments and other necessities too. But what about the rest of your paycheck? Many times we cannot account for our spending. Designing a budget can help. For beginners, the best way to start is to look at your bank statement. Pay attention to where your money is going. Evaluate essential versus variable expenses and adjust your priorities as needed.
- Establish Goals
Make sure you include savings in the essential category. Some financial experts use the 50/30/20 rule: 50 percent of your money should be spent on needs, 30 percent on wants, and 20 percent on savings. The savings part is crucial—it can help you accomplish short-term and long-term goals, as well as prepare you for any unexpected expenses that may arise. Set realistic goals, stay on track, and make sure to include college savings as part of any plan.
- Start Early
It is never too early to start saving for your child’s education expenses. Children grow up quickly, and soon your kindergartener will be in high school. If you save now with a tax-advantaged savings account, you can help your child achieve more with less debt. Even if you don't save enough to cover the full cost of a college education, every little bit saved today can help reduce the amount of debt your child takes on in the future. And that's a worthy goal! Accounts can be used for four-year universities, community colleges, professional schools or trade schools, and the funds cover not only tuition, but many of the expenses that come with higher education: room and board, books, computers, and more.
- Contribute Regularly
With a 529 account with The Education Plan, saving is made simple. There is no minimum contribution, so you can start small. Open an account and contribute as much as you can now; you can always increase later. The Education Plan also offers an automatic deposit system for seamless deduction from your bank account, so you never skip a contribution. You can step back and watch your savings grow over time.
- Know the Details
With a 529 plan, earnings are reinvested in your account, setting it up for growth. Investment in mutual funds is a smart long-term strategy, as there is the potential for higher returns. In addition, if one child does not need the funds for college, the money can be transferred to another eligible family member. You can withdraw money from the account at any time, tax-free, as long as it is used for qualified education expenses.
- Be Creative
Bonuses, raises, and tax refunds are great ways to increase savings. If you can maintain your current lifestyle before that raise, invest the extra money in your child’s future. For birthdays, holidays, and special events, encourage an investment gift rather than material items such as toys. Anyone can contribute: grandparents, loved ones, and friends.
Peace of Mind
With a 529 tax-advantaged savings account, you gain peace of mind. The accounts are designed to help families feel less overwhelmed by the thought of college expenses. Whether you are a seasoned or new investor, have a 2-year-old or 12-year-old, a 529 plan with The Education Plan focuses on your unique investment needs. It’s user-friendly, flexible, and professionally managed, so you can focus on raising your children now, instead of worrying about them later.