For parents or grandparents wishing to save for college, now is the perfect time to start as we celebrate College Savings Day on May 29th (529, get it?). According to the College Board, the average yearly cost for tuition and fees for a public 2-year college (in-district) is $3,440 and a public 4-year college (in-state) is $9,410.
There are benefits to starting a 529 savings plan, which explains why they’re commonly used to save for college. Investments potentially grow tax-deferred and there are tax-free distributions for qualified education expenses. Plus, 529 savings plans have high contribution limits, are open to any income level and they provide estate planning benefits. The average saver utilizing a 529 college savings plan has saved $21,383, a 5.9% increase from 2015 and a record high for the savings tool.
Analyze Your Savings Options
There are a range of college savings options—from a 529 savings plan or prepaid tuition plans to custodial accounts, gifting or other tax-advantaged strategies. When choosing the best option for you, consider the following:
- How much money you can contribute
- How long until you will need to withdraw the funds
- The level of control you want your child to have over the money
- Tax advantages, income requirements and fees
No matter which college savings plan you choose, keep in mind the sooner you save, the better—even modest savings can add up over time. It may be difficult for families to save for all four years, but Busey encourages you to set a goal to save for one year. Set up a systemic plan and incorporate it into your monthly budget to pursue your goals.
How Much Should You Put Away?
Understanding your role in paying for college is important—you may not have to save the entire cost of four years of college. Consider the contributions from your child, other family members, any potential grants and loans and any other forms of income. You may not know how much financial aid your child will be offered, but it is better not to depend on loans to get your child through college.
Fitting College Savings into Your Finances
As parents, college planning is only one component of your financial picture. Prioritizing various financial goals—from college expenses to financial preservation and retirement—is important. Most parents, especially those who started families in their 30s and 40s, can’t afford to delay saving for their retirement until the college years are over, because they will miss out on years of tax-deferred growth potential and possibly employer-matching 401(k) plan contributions. The key to saving for both is to tailor your monthly investment to your particular investment goal—college and retirement—and determine your time frames and liquidity needs for each goal.
The team of professionals at Busey can help you determine how college savings fits into your unique financial situation. Visit Busey at 312 E. Main St. in Mahomet—or any of their many convenient locations—or call 1.800.67 | Busey to start saving today.
Investment Products and Services are: Not FDIC INSURED | May lose value | No bank guarantee
