College is an important rite of passage and next step for many students. But the price tag can be a wake-up call. So, how do you put together effective college savings plans? And is it ever too early to start planning and saving for college? We’re helping keep our DEXSTA members in the know.
How to start saving for college
When saving for your or your child’s college, it’s never too early to start. A good rule of thumb is to start small and build from there. It could even be as little as $50 a month into a savings account. This could amount to about $21,000 by the time the child is 18––depending on when you start and the return percentage.
Another good rule is to make sure your finances are in order before focusing on college savings. That means getting your debt under control, setting aside money for retirement, and having a rainy day fund. Make sure you have a realistic idea of what you’re getting into. Whether you’re saving for your child’s education in 18 years or your own back-to-school plans, know the stats. The average yearly tuition for a public, in-state school is $20,770 whereas the average for a private four-year is $46,950. These numbers can vary, but it helps to be in the know before you jump into college savings plans.
What about 529s and other college savings plans?
If you haven’t heard of one before, a college savings plan is typically a tax-advantaged savings plan, specifically for college expenses. 529 college savings plans are arguably the most popular. They’re plans that every state offers and are “portfolios of mutual funds.” They also often come with tax breaks and tax-free withdrawals. You can also use the funds in these plans “to pay for college costs at any qualified college nationwide.”
If state college savings plans aren’t a fit, there are other options. You can also open a custodial account, a “taxable account opened on a child’s behalf” used for education. Or, you can simply open a separate savings account with your financial institution that you set aside only for your or your child’s higher education.
Other ways to save
Besides setting money aside for college, there are a few things you or your child can do to be financially ready. The first, and most obvious, is to apply for scholarships. These “free money” awards can sometimes pay for a big chunk of tuition, so they’re worth applying. Another tip is to encourage kids to save money early. DEXSTA’s teen savings program, for example, encourages disciplined saving that has lasting positive effects. Not to mention some extra money in the bank to help out with college or use during those years apart.
Start with DEXSTA
At DEXSTA, we like our members to be prepared. Wherever you are in the savings process, we have the savings plan options and loans to make college obtainable.