- Students can borrow for college; there are no loans for retirement.
- 529 plans offer tax advantages for qualified education expenses.
- The price you actually pay is often lower than the published cost.
- How savings are owned can affect financial aid.
Start with your own priorities
Helping a child pay for education is a generous goal, and it usually works best once your own finances are in order. Students can borrow for school, but there are no loans for retirement. Many families keep their emergency fund and retirement savings on track first, then save for education with what is left.
Estimate the cost
Costs vary widely between community colleges, public and private universities, and trade schools. Look up the published cost of attendance for the schools you have in mind. Remember that many students receive grants and scholarships, so the amount you ultimately pay can be less than the published price.
529 plans
A 529 plan lets you save for education in a tax-advantaged way. Investment growth is not taxed, and withdrawals used for qualified education expenses are generally tax-free at the federal level. Many states also offer a tax deduction or credit for contributions. If money is withdrawn for non-qualified expenses, the earnings may be subject to tax and a penalty, so it is important to understand the rules.
Other ways to save
Coverdell education savings accounts, custodial accounts and regular savings or investment accounts are other options, each with its own trade-offs. Some families use a Roth IRA as a flexible backup, though that money is usually better left for retirement.
Financial aid basics
Most financial aid starts with the FAFSA, the Free Application for Federal Student Aid. Aid can include grants, scholarships, work-study and federal loans. How and where your savings are held can affect aid eligibility, so planning ahead helps.
Get the family involved
Talk with your child about costs, expectations and options. Scholarships, part-time work and starting at a community college can all reduce the amount you need to save.
Common mistakes to avoid
- Starting to save too late
- Sacrificing your own retirement savings
- Ignoring how savings affect financial aid
- Not comparing the true net cost of different schools
Your next step
Balancing college savings with your other goals is easier with a clear plan. If you would like help building one, request a free consultation.
Plan for their future and yours
We can help you balance education savings with everything else on your list.