It’s no secret that college tuition and other expenses are not cheap, but there’s no reason to wait to start saving money for that time in life. Starting a college savings strategy as soon as you can is a great way to transition smoothly into adulthood and make the college experience less of a source of stress. Here are a handful of tips toward saving up prior to college as well as during college.
Start a 529 Plan
This type of college savings is a state-offered plan that is exempt from federal taxes and is one of the most popular options. You can deduct your contributions from your state income tax, and in addition, the funds won’t be taxed when they are withdrawn for college. There are two primary types of 529 plans: a college savings account and a prepaid tuition plan.
The earlier you start a 529 plan, the longer the money has time to increase. However, it’s important not to neglect the account once it is opened, as many parents and/or students make the mistake of forgetting to make regular payments, whether that’s monthly, quarterly, or annually. Without regular contributions, the interest gained from it will fail to amount to much.
Almost every state has its own 529 plan options, and you are not required to use your own state’s plan. If a different state has better investment options for you, you can open one anywhere.
Open a Roth IRA
While a Roth IRA is typically known to be used for retirement savings, it doesn’t necessarily have to be. If the appropriate contributions are being made, it can be used as a method for investing after-tax dollars and protects earnings on your contributions from being taxed as they grow and are withdrawn. One benefit of using a Roth IRA is that even if you choose not to go to college or use the funds, you’ll already have that money accumulating for retirement.
Get a Coverdell Education Savings Account
Education Savings Accounts (ESAs) are like a 529 plan, although they are different in some ways. ESAs are tax-deferred trust accounts in which earnings accumulate tax-free so long as the funds are used directly for education. The total amount of funds saved must be used by age 30 to avoid any tax penalties, and you are unable to contribute more than $2,000 per year. Another important thing to consider is that these accounts are only available to taxpayers with an adjusted gross income of $95,000 or less (single taxpayers) and $190,000 or less (married taxpayers).
Buy Digital Savings Bonds
Buying a savings bond from the Treasury allows you to redeem and use them for higher education as well as exclude the income from annual gross income for tax purposes. As opposed to an investment portfolio in a 529 plan or ESA, savings bonds are guaranteed by the government and have very little risk, although the amount of interest you can earn is typically much lower.
Apply for Scholarships
Hundreds of schools, companies, and organizations offer scholarships based on merit or financial need. The great thing about scholarships as opposed to student loans is that they do not have to be paid back. You can start your scholarship search even before you reach your senior year of high school. Some scholarships offer awards for certain activities or qualifications completed in years prior to college, and you may be able to secure more than one (dependent on scholarship criteria).
You should also complete the FAFSA application. Federal student aid is available for most U.S. citizens or eligible noncitizens to help cover the cost of college. The application is free to complete, and you should submit it even if you think you may not qualify. Eligibility criteria includes demonstration of financial need, being a U.S. citizen, having a valid social security number, accepted or enrolled as a regular student, and satisfactory academic progress.
Saving During College
Once you’ve taken the big, exciting leap into the college experience, the whirlwind of friends, classes, and work can be overwhelming at first and it can be difficult to focus on saving your money. Here are a few tips to keep your money in check:
- Create and stick to a budget that is reasonable and simple to abide by. Just because you have money flowing in doesn’t necessarily mean you should spend it. Documenting your monthly financial obligations will keep you from having too many “uh oh” moments when you’ve accidentally spent too much.
- Take advantage of student discounts. Many organizations like restaurants, coffee shops, and even retail stores will offer student discounts when you provide proof of ID, which can help save you a lot of money in the long run.
- Find a job. This may be self-explanatory, but students may feel that they simply don’t have the time. Even part-time jobs or positions with low hours will help you keep a bit of income flowing.
In order to avoid taking out a large amount of loans and scrambling for financial aid you get to college age, putting one or multiple of these savings options in place is a wise financial decision. At Republic Bank, we help individuals and families with personal investment options as well as loans to put you on the right track for setting up a successful future. Reach out to us at 800-526-9127 or visit our library to learn more about saving money.
