During our Saving for College Twitter chat to celebrate College Savings Month, we asked expert panelists to weigh in on college saving questions.
We covered creating college saving goals, avoiding the biggest college saving mistakes, creative ways to boost your savings, and the benefits of a 529 college savings plan. Panelists included expers from Upromise, Gift of College, Ohio’s 529 College Advantage, College Advantage’s Executive Director Tim Gorrell, and Mark Kantrowitz, Publisher of Savingforcollege.com.
If you missed out on all of the helpful tips, here’s a recap of the event. Follow us on Twitter for the next college savings twitter chat and expert advice on paying for college and dealing with student loan debt.
1: How can parents determine how much to save for college? What’s a good savings goal?
Set a modest goal, say 50% for an in-state school. Use our calculator to determine how much that will cost. The important point is to start saving and investing today.
Aim to save about a third of future college costs. Like any major expense, spread out the cost over time with a third from past income (savings) and a third from future income (loans).
Don’t get discouraged. Think in small steps, like “paying for books”, then “paying for one semester of tuition” or “one semester of room and board”. You’ll be amazed at how quickly your savings add up.
This goal is about the same as the full cost of college the year the child was born. For a child born this year, that’s $250 per month for an in-state public 4-year college, $450 for an out-of-state public 4-year college and $550 for a private college.
For personalized estimate, use a college savings calculator.
Every dollar saved is a dollar plus interest not spent on #studentloans. Any amount helps!
- The Magic Number for College Savings
- How to Reach Your College Savings Goal with a 529 Plan
- Hidden College Costs
2. What are the best ways to save for college?
We admit it, we’re incredibly biased. However, don’t take our word for it. Look at what
In more than two-thirds of the states, contributions to the state’s 529 plan are eligible for a state income tax deduction or tax credit. (7 states allow the tax break for contributions to any state’s 529 plan.)
Earnings accumulate on a tax-deferred basis in a 529 plan and are entirely tax free if you use them to pay for qualified expenses.
529 college savings plans provide tax and financial aid advantages.
A great question. The answer is, it depends, hard to know what after high school education experience a beneficiary will have when they are very young Start with a modest goal- save for 50% of an in-state school. The key is to start saving and investing today.
Do you think a child should participate in their college savings plan? For example, putting a percentage of their paycheck into a 529 plan or general savings account for books, etc.?
14 million American’s are giving their children the best chance at reaching their higher learning dreams without student loan debt by saving in #529plans.
There are many ways to save for college, including 529 plans, prepaid tuition plans, Coverdell education savings accounts, U.S. Savings Bonds, UGMA/UTMA accounts and Roth IRA. 529 plans are the best.
- Can You Use an UGMA or UTMA Account to Save for College?
- Coverdell ESA Verses 529 Plan
- How to Save More for College
3. What makes 529 plans such a great way to save for college?
Taxes, taxes, taxes – the tax advantage is the key.
529 plans also offer financial aid advantages. A student-owned or parent-owned 529 plan is reported as a parent asset on the FAFSA, yielding a small impact on eligibility for need-based financial aid.
You can find a list of the states that offer a state income tax break on 529 plan contributions here.
Besides the tax advantages, flexibility and low cost, 529 plans provide an endless source of banter at dinner parties.
529 plans provide the best combination of tax and financial aid advantages for college savings. Here are the top benefits of 529 plans.
529 plans provide estate tax benefits, such as superfunding (5-year gift tax averaging).
Here’s another article in which we discuss the advantages of disadvantages of 529 plans.
4. Why should saving for college be a priority?
The priority to save for college is to avoid student loans. I took out way too many loans for undergrad and grad school. It is a struggle to pay them back, but I’m making great progress this year.
College savings is the antidote to student loan debt. Not only is it cheaper to save than to borrow, but college savings provides the family with the flexibility to choose a more expensive college than they otherwise would be able to afford.
If you don’t save for college, you will have to borrow to pay for college.
$85b in student loan debt is owed by people over 60. #nuffsaid.
Because savings (rock) beats debt (scissors). Every little bit helps.
Someday, your child is going off to college. Someday starts with Ohio’s 529 Plan at collegeadvantage.com.
- How to Help Your Children Reduce Student Loan Debt
- How to Minimize Student Loan Debt
- Despite high student loan balances, Millennial parents are saving for college
5. What is the best age to start saving for college? Is it ever too late?
When a child is born or sooner is the best time. But it is never too late. Think of when is the best time to plant a tree – well the best time is 20 years ago, when is the next best time? – Today!
You can even save after the child is already in college. If your state offers a state income tax break on contributions, contributing the money and then immediately taking a distribution is like earning a discount on college costs.
There even benefits to setting dollars aside now for next semester’s book’s or other expenses. Parents will have to pay these expenses anyway. Why not maximize this with a #529Plan.
You can even save for college after your child graduates from college and use the money to repay their student loans (up to $10,000 lifetime limit) tax-free.
Getting started seems to be the hardest part but it shouldn’t be. Almost every state has a 529 plan, information on their website, and the ability to open one. Many for as little as $25.
It’s never too early or too late to save for a loved one’s college education.
It is never too late to save for college, not even if your child is a high school senior. Every dollar you save is a dollar less you’ll have to borrow.
Every dollar you borrow will cost about two dollars by the time you repay the debt. So, college savings will save you money even if you start late.
If you start saving from birth, about 1/3 of your college savings goal will come from earnings. If you wait until high school, less than 10% will come from earnings and you’ll have to save 6 times as much to reach the same goal.
The best time to start saving for college is now. Infant to 17 years old, every dollar saved is one not borrowed.
- Is it ever too early to start saving for college?
- What is the Best Parent Age to Start a 529 Plan?
- Is It Ever Too Late to Save for College?
6. What are some obstacles that people need to overcome when it comes to saving for college?
We’ve made saving easy for the over 7 million members who’ve joined Upromise. It’s free to join and cash rewards are automatically swept into your 529 savings plan.
Start saving today. We can even offer tips on how to manage & grow your #529Plan as your child grows.
Sometimes, it is hard to get started at saving. But, once you get started, it is easier to increase the amount you save.
Try to avoid procrastinating. It is so easy to delay the decision. But waiting to start will reduce the benefit of compounding. Start small and make the saving automatic. You can increase the contributions later.
- How to Choose the Best 529 Plan for You
- How to Select a 529 Plan
- 4 Lousy Reasons Not to Save for College
7. What are the biggest college savings mistakes and how can people avoid them?
Delaying the process is the biggest mistake. Compound interest is an amazing thing and starting your 529 plan earlier rather that later gives you that advantage longer.
Failing to consider the tradeoff between state tax breaks for an in-state 529 plan and lower fees for an out-of-state 529 plan. Sometimes one is better than the other, depending on the child’s age.
Beware of taking too large a distribution from my 529 plan, as distributions and qualified expenses must occur in the same tax year. Take the distribution after you pay the expenses, not before.
Watch out for emotional mistakes when choosing investments, such as misjudging your risk tolerance.
Not saving enough. It isn’t just tuition, it is room and board, books, fees, etc.
The biggest college savings mistake is failing to save for college. Often, the financial aid penalty for savings convinces some families to not save. But, the penalty is small and you are better off with savings than without.
- Parents regret not saving more for college
- 10 Reasons Clients Aren’t Saving for College
- Yes, your 529 plan will affect financial aid
8. What are some creative ways you can save more money for college?
If your child has any special talents (e.g., drawing, music), auction off a drawing or performance for contributions to their 529 plan.
Offer to match your child’s contributions to their 529 plan.
Fun Fact 1: Upromise members earn cash rewards on everyday purchases with participating retailers and restaurants. Rewards are automatically swept into a 529 savings plan.
Give the gift of college instead of birthday and holiday presents.
Friends and family are often seeking the perfect gift. The gift of college is that perfect gift. Today it is as easy as a gift card toward any 529 that can be found at Walmart.
Make saving automatic, so you don’t have to think to save.
Use a college savings reward card, like Upromise.
- Using Your State Income Tax Refund to Save for More College
- How to get more financial aid for college
- How to Save More for College
9. How can parents get help with saving for college?
There are many ways for parents and grandparents to maximize their college savings including automatic contributions, gifting plans and free cash reward services.
1. Get started ASAP with a 529 plan. 2. Have your employer deduct an amount you can afford right from your paycheck. Ask them to match it. 3. For birthdays, graduations, and major life events have friends and family contribute. https://giftofcollege.com/Register/
Ask friends and family for help.
Redirect windfalls like tax refunds and inheritances toward college savings.
Our Ugift makes it incredibly easy for friends and family to help with birthdays, holidays, graduation and so much more.
Ask your employer if they offer a 529 match. Gradvisor.com helps companies facilitate employer 529 plans.
- How to give the gift of college savings
- How to save more money for college
- A $500 Holiday Gift Can Pay for a Year of College Tuition
10. What are the best resources for learning more about saving for college?
You can learn more about Upromise. Upromise members who link to a 529 plan are automatically entered into the Upromise 529 Scholarship Program. We are awarding five $529 Scholarships each month.
Celebrate College Savings Month with special events from 529 plans. See a list here.
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Just in time for #collegesavingsmonth, visit our #BackToSchool2020 resource for your #collegesavingsquestions, http://collegeadvantage.com/theplanthatcan . We address your “Why, Where, How & What About?” questions.
GiftofCollege.com has a suite of solutions to help individuals and employers with 529 plans and student loans.
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