With the rising costs of college tuition, it is never too early to start thinking about the ways you can fund your child’s education.
College savings plans offer a flexible, tax-advantaged way to save for your children’s college education.
According to Tarun Garg, head of college savings at BlackRock, “The biggest benefit of a tax-advantaged account like a 529 is tax-free compounding of your money. The longer your money stays in the account, the more it grows and the more you save on taxes”.
Yet, funding can be a problem, because other expenses are prioritized.
So let’s look at ways to save for your children’s college tuition.
One of the easiest ways to contribute to the college savings fund is to deposit your tax return or stimulus checks, like the ones many received this year.
According to Morgan Stanley, tax refunds in 2021 are expected to be up 26% over last year, and 65% of Americans are planning to put that money into a savings account.
Factor in stimulus payments—which many people are receiving around the same time—and some parents are discovering there’s a little extra in their budget. Why not put it towards college?yourteenmag.com
Small Month Contributions
It might not be possible to put all of your tax refund or stimulus check towards your college savings fund.
Contributing small amounts every month can add up to at least covering certain costs for when they go to college.
And remember that your child may also have access to financial aid.
In fact, according to “How America Pays for College,” the national study from Sallie Mae and Ipsos, scholarships and grants covered 25% of college costs and were used by 71% of families in the 2019-2020 academic year.
Fewer families are filing the FAFSA®, which means they could be missing out on thousands of dollars in financial aid
Just 71% filed for the academic year 2019-20—a decrease from 83% two years ago.
The #1 reason given for not filing the FAFSA was that families believed they would n’t qualify for any aid (43%)salliemae.com
- The biggest benefit of a 529 plan is that it compounds your money and it doesn’t get taxed, so you keep all the profit.
- Only 25% of college costs were covered by scholarships, which leaves another 75% of costs for the student to take in on loans or the parents to pay.
- Even if you can only make small contributions to your 529 plan, it adds up over time.