What Are Ways to Save Money for College?
With rising educational costs, many college savings tools, incentives and plans have been developed to help parents and students save money for a college education. Two prominent college money management tools are discussed in this article.
College Costs Overview
College costs for the 2022-2023 school year increased 1.8% for a 4-year public school, resulting in $10,940 in average tuition and fees at these schools. Total costs, including room and board, were $23,250 at public schools. In comparison, college costs increased by 3.5% for a private school, resulting in tuition and fees of $39,400, said the College Board. Total average costs at a private school were $53,430.
Important Facts About College Programs
|Degree Levels||Associate's, bachelor's, master's and doctorate degrees available|
|Prerequisites||Varies, depending upon intended program of enrollment; associate's and bachelor's degree programs typically require a high school diploma, or equivalent|
|Concentrations||English, history, sociology, accounting, finance, health services, nursing, mathematics, communication, data analytics, geosciences, human services|
529 College Savings Plans
In 1996, section 529 of the Internal Revenue Code was amended to include tax savings for those who invest in qualified tuition programs. These programs, known as 529 plans, are administered by each state. There are two types of 529 plans - the prepaid tuition plan and the college savings investment plan. With a prepaid plan, parents can buy tuition in advance from an in-state public college - at today's price - for children who will be attending college in the future. The 529 savings plan is an investment account managed by the state. The amount earned is based on contributions and market performance. Benefits of 529 plans include:
- No maximum investment
- Some states allow tax deductions for account contributions
- Disbursements for qualified education expenses are not taxed
Coverdell Education Savings Account
The Coverdell Education Savings Account, formerly called an Education IRA, is an investment account established to pay for a beneficiary's qualified education expenses, including college tuition, room and board. The Coverdell ESA may also be used for some K-12 education expenses. Tax-free withdrawals from the account may occur anytime for qualified education expenses. Any withdrawals for non-education expenses are taxed. Some key points for this account are:
- Maximum investment of $2,000 annually
- Contributions can be made until the beneficiary reaches 18 years old
- All funds not disbursed by the beneficiary's 30th birthday incur a 10% tax
Considerations in Saving Money for College
There are many more savings tools available than those mentioned above. Talk to a financial consultant or tax specialist about which tool is right for you. When planning college savings, consider the following:
- Current tax implications of your savings plan
- Changing tax laws
- The amount of time you have to save
- The general amount you need to save