The Ultimate Guide to Saving for College
College is an exciting journey filled with endless possibilities and opportunities for your future. But higher education comes with a price tag – for the 2023-2024 year the average tuition and fees cost before scholarships and aid (excluding housing, food and books) for a public, in-state college is $10,662, compared with $23,630 for public, out-of-state college and $42,162 for a private college, according to U.S. News. Let’s dive into the various investment options and saving strategies specific for a college education.
529 Plans
One of the most popular ways to save for college is through a 529 plan. These state-sponsored investment accounts allow you to save for future education expenses. One of the top perks for a 529 is that earnings are not subject to federal tax and generally not subject to state tax when used for qualified education expenses such as tuition, fees, books and other qualified educational expenses. However, contributions to a 529 plan are typically not tax deductible. There are plenty of resources for additional information, such as the U.S. Securities and Exchange Commission.
You can set up your own 529 plan through your respective state:
- Kansas – Learning Quest 529 Savings Program
- Missouri – MOST 529 Account
- Illinois – Bright Start 529 Plan
Uniform Transfers to Minor Acts (UTMA)
Another option for saving for college is an UTMA account. This type of account allows you to transfer assets to a minor without the need for a trust. The assets in a UTMA account can be used for any purpose that benefits the minor, including education expenses. By investing in an UTMA, you can contribute up to a certain amount each year, free of gift-tax consequences. This can include cash, real estate, or other inheritances. However, the custodian must transfer the account to the child at a relatively young age (between 18 and 25), after which the money can be used for any purpose. Our Wealth Advisors can help you decide if a UTMA is best for your family.
Other Savings Options
In addition to 529 plans and UTMAs, there are other options available for college savings such as Non-Qualified accounts, Roth IRA, Custodial IRA and Traditional IRAs. These options have a lot of different rules that apply. Consult a tax advisor as well as a Wealth Advisor to discuss other long-term savings options. It’s essential to consider the potential returns, risks and tax implications of each option before making a decision.
Strategies for Saving for College
- As with any investment, it’s always better to start saving early. The earlier you start saving, the more time your money has to grow.
- Set savings goals. Determine how much you need to save for college and set specific goals to help you stay on track.
- Consider automatic contributions. Setting up automatic contributions to your college savings account can help ensure consistent savings.
- Research financial aid options. Be sure to explore financial aid options, scholarships and grants to help offset the cost of college. CommunityAmerica’s free College Planning service helps families understand the process of choosing, applying and paying for school. From tools to help you calculate the costs of college and compare schools to getting ready for applications and admissions, you'll find everything you need to prepare for educational success. And if you have any questions along the way, get in touch with our dedicated College Planner for individualized guidance.
At Wealth Management by CommunityAmerica, we believe everyone should have the opportunity to set and achieve their goals. Saving for college is an important financial goal that requires careful planning. By exploring all your options, you can take proactive steps towards funding education. Remember to start early and set goals to make college savings process manageable and successful.
