$140,000. That’s the approximate cost to send your freshman to private college for four years if you sent him or her this year, according to The College Board. And that’s just tuition and fees. Books, room and board and personal expenses can send your total soaring over $200,000.
State residents at public colleges, you’re only on the hook for about $40,000 in tuition — though the other expenses can launch you into the six figures. Either way: You’re going to need a lot of cash to get your kid through school. Here’s how to get there without going into debt.
1. Start Saving Now
Even if you can only put away $25 to $50 each month, get that money invested in a 529 college savings account. Setting up automatic contributions will make saving a habit, and the dollars will add up over time thanks to the tax-free investment growth they get when used for qualified education expenses.
What is a 529?
A 529 is a tax-advantaged savings plan — named for the section of IRS code they fall under — designed to encourage saving for future education costs, according to the SEC.
We started saving in a 529 for our 7-year-old when she was born, and when she graduates from high school we anticipate to have around $10,000. A nice jump-start on paying for books if nothing else, but we still have a long way to go to reach the $140,000 mark.
CEO and co-founder of HerMoney Jean Chatzky says not to feel bad about about that. “Although it’s admirable to want to save all the money your kids will need for college, your retirement saving has to come first. There’s no financial aid for retirement.” She suggests trying to save about a third of the overall cost.
Want to create a college savings target for your family? Try the world’s simplest college cost calculator.
2. Find the Right 529
A 529 plan is the most popular college savings tool for good reason: It provides tax-deferred investment growth, and distributions used to pay for college (and some other qualified education expenses) are federally tax-free. 529 plans are offered by each state, and you can invest in any state’s 529 plan. For example, we live in Florida, but we invest in the 529 from Virginia. About 30 states offer a state tax deduction for residents who contribute to the plan. Compare 529s across the states to see which has the best benefits for your needs.
What are qualified education expenses for 529 plans?
Qualified education expenses, as they related to 529 plans, include post-secondary education costs including tuition, room and board, technology items, and books and supplies.
3. Check Out Age-Based Investment Options.
Make sure you’re putting the money you put into the 529 plan to work.
Like 401(k)s, 529s plans offer a wide range of investment options. Typical 529 plans will have age-based investment options that automatically rebalance, taking more risk when your child is young and less as college gets closer. If you have a financial adviser, make sure you keep him or her in the loop to make sure you’re still on track to hit your goals. As your income goes up, you can and should bump up the money you’re putting into the 529 as well. And, don’t hesitate to tell grandparents, aunts, uncles and anyone else who regularly gives your child gifts that you’d love them to consider padding the 529 instead of, say, the closet or toy box. Websites including giftofcollege.com and leafsavings.com make it easy to contribute. Or, they can just write a check for you to put in: Every little bit helps.
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