How to Save for College
With proper planning, saving for college may be simpler than you think. College tuition has risen 237 percent in the last 20 years* and has increased each year since 2012. For the 2016-17 academic year, the average college tuition for a 4 year, in-state school was $24,610**. However, knowing how much you need to save is the first step toward being financially ready for this next phase in life.
Ways to save right now
One way to get a head start on saving for college is to make savings part of your family budget. Think of your savings as a bill that you must pay each month so that it doesn’t get overlooked or forgotten. Setting a budget and saving early can add up over time. Some experts even suggest starting a college fund even before your child, or grandchild, is born***.
There are two types of qualified tuition plans: prepaid tuition plans and college savings plans. Prepaid tuition plans permit savers to buy credits to a participating college or university while college savings plans work like traditional tax-advantaged plans. With a college savings plan, money is invested into a portfolio and generally shifts more conservatively as the beneficiary reaches college age. College savings plans are usable at any college or university.
One way to save for college is through a 529 savings plan. An easy way to remember this option is with the rhyme ‘if your child is 5 to 9, start a 529.’ These plans are designed to encourage saving for future college costs and allow parents or guardians to save on a tax-advantaged basis, similar to IRAs. Legally known as qualified tuition plans, 529 plans are available in nearly all 50 states.
Before jumping into saving for your child’s future, be sure to think through all parts of your plan for long-term financial stability. Avoid these common financial planning mistakes and don’t be afraid to ask for help along the way.
* U.S. News and World Report (2017, September 20). Web page: See 20 Years of Tuition Growth at National Universities. Retrieved Oct. 11, 2017, from https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities.
** The College Board (2016, October) Report: Trends in College Pricing. Retrieved Oct. 11, 2017, from https://trends.collegeboard.org/sites/default/files/2016-trends-college-pricing-web_0.pdf.
*** Kiplinger (2017, March). Web page: 529 College Savings Plans for the Unborn. Retrieved Oct. 12, 2017, from http://www.kiplinger.com/article/college/T002-C032-S014-529-college-savings-plans-for-the-unborn.html.
Mutual of Omaha Investor Services, Inc. and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation.