New year’s resolutions often include financial goals such as paying down debt and saving money for retirement. Parents who are saving for college should also use this time to review and improve their college savings strategy.
Here are nine college savings resolutions to get you on the right track for the year ahead.
1. Review your college savings goals. Many parents set up a college savings plan when their child is very young, or even before the child is born. As years go by, you may find that your goals have changed since you first started saving for college. For example, your child may want to attend a more expensive college than what you’ve been saving for. As you review your current situation, use a college savings calculator to estimate future college costs and how much you should be saving to meet your new goals.
2. Open a 529 plan. A 529 plan is a tax-advantaged account designed to help families save for college expenses for a designated beneficiary. Investments in a 529 plan grow tax-deferred and are not taxed when funds are withdrawn to pay for qualified higher education expenses. Parents who have a 529 plan for a child should consider setting up a separate 529 plan account for each child born or adopted into the family.
3. Automate 529 plan contributions. Most 529 plans offer automatic investment plans that allow you to schedule regular contributions from a linked bank account. This “set it and forget it” approach is an easy way for parents to stay on track to meet their goal.
4. Look for ways to save more for college. As you review your budget for the coming year, look for unnecessary expenses to cut to make room for larger 529 plan contributions. You’d be surprised how much you can save each month by skipping your daily latte or switching from cable to Netflix. Consider increasing your monthly contribution if either parent’s salary has increased, and make lump sum deposits with any bonuses, inheritances, tax refunds or other windfalls.
5. Ask for the gift of college. When friends and family ask for gift ideas for your child for birthdays or holidays, suggest that they give the gift of college instead of a traditional gift. Many 529 plans offer gifting platforms that make it easy for third parties to make a gift contribution by check or electronic deposit.
6. Sign up for Upromise. Upromise is a loyalty program that offers cash back rewards for online shopping, dining at participating restaurants and using the Upromise Mastercard. Rewards can be deposited directly into a linked 529 plan.
7. Review your investments. 529 plans generally offer age-based and static investment portfolios. Age-based investment portfolios automatically shift asset allocations over time based on the beneficiary’s age, but static investment options remain the same unless manually changed by the 529 plan account owner. Parents with a static investment portfolio should switch to more conservative investments as the beneficiary gets closer to college. You can make 529 plan investment changes twice per year.
8. Review 529 plan performance and fees. High 529 plan fees and poor investment performance can shrink your college savings. Review Savingforcollege.com’s quarterly 529 plan rankings and semi-annual fee study to see how your 529 plan stacks up against the competition. Also review state income tax benefits if your state offers a state income tax deduction or tax credit for contributions to the state 529 plan. If you are unhappy with your current 529 plan, consider rolling the funds into another 529 plan. 529 plan account owners are limited to one tax-free rollover per 12-month period.
9. Look for scholarships. It’s never too early to look for scholarships that will help pay for college. There are many scholarships available to children in elementary school. Some scholarship providers will hold the scholarship funds in escrow until the student is enrolled in college, and others will contribute the award to a 529 plan.
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