What Are My Savings Options for College?

May 17, 2022

It’s never too early (or too late) to start thinking about college savings for your children. As tuition rates continue to rise and the job market becomes fiercely competitive even for college graduates, planning for this aspect of your child’s future is essential for your overall financial planning strategy. At OneAscent, we work with our clients to find savings solutions that work for them and their children. 

The Best Way To Save For Your Child’s Education

There are a variety of ways to save for a college education, but the best way depends on you. How much you want to save as well as how much time you have before your child reaches that age will determine the best strategy for your savings plan. Below are just a few of the most common methods for college savings: 

 

Open a 529 Plan for Your Child

A 529 is the most common way to save for college, and for most people, it’s also the best way. Because states want to encourage attendance at public universities, they offer incentives to invest in these types of savings accounts. You can often deduct your 529 contributions from your taxes and when the money is withdrawn for college expenses, it won’t be taxed. 

The one caveat to these plans is that because they are state-sponsored, they can limit what colleges you can choose to spend this money on. Most will only offer tax-free deductions for in-state public universities, so if your child wants to go to a private college or an out-of-state school, they may not be able to use the full benefit of their 529 account. 

 

Use Eligible Savings Bonds

Savings bonds are a low-risk option that can ensure your child has the money to go wherever they want. Plus, with many higher education savings bonds, you can exclude the contributions from your gross income on your taxes. While this is a low-risk option, it is also a low reward one. Interest rates are typically 0.1% for these types of savings bonds, so they are not ideal if you have a shorter period of time to save. 

 

Open a Roth IRA

Roth IRAs are typically used for retirement, but they are not exclusively for this purpose. Roth IRAs have higher growth potential and shield you from the tax burden on withdrawals. However, these are not traditional savings vehicles for college and have some drawbacks. For example, only parents can contribute to these savings accounts, while other relatives can give contributions to 529 savings plans. 

 

Saving for Multiple Children

If you have more than one child, the equation becomes much more complex. Not only do you have to save more, but you must struggle to find a fair balance of financial aid for each child that takes into account their individual needs and plans for the future. 529s are still the most common option, but if one child has more saved when they reach college age, this can complicate matters. Children may also take drastically different life paths, and one child may need much more financial aid than the other, which raises questions of fairness within the family. 

Some parents will answer the questions of fairness by offering all children the same limit of financial aid for each year of college. For example, you can offer to cover up to $10,000 per year for each child, regardless of their school’s tuition. If the child does not need that much for their education or gets scholarships to cover their own tuition, the savings can be contributed to other expenses or can go into an investment account for their future. 

Finding the right financial plan for your children should be a family discussion first, and then a discussion with your OneAscent financial advisor. We offer a variety of plans to help you achieve your desired goals and ensure each of your children has a bright future ahead. 

 

 

 

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