Many parents and families plan to start saving for college education as early as a student’s birth. While those intentions would make paying for life beyond high school much easier, not everyone follows through on that goal and those who do often get their savings interrupted by emergencies or life changes.
A student may already be in high school before their family starts scrambling to find ways to save for what, by that point, seems an insurmountable challenge. The challenge might be more difficult, but saving for a student’s education can still happen even with fewer years left to plan. Here are some tips to keep in mind for those late-savers:
- Keep saving through college: Most parents think that the first day of college is the last day of savings. But thanks to options like 529 savings plans, families can still sock away money through the four years of college. By assuming the same hypothetical rate of return for the account, families can invest less per month and still come out on target when college is over. Disbursements from 529 accounts are tax-free (as long as they are used to cover qualified education expenses like tuition and books) and parents can withdraw funds at any time, not just the beginning of the semester.
- Let the student get into the savings game. While Mom, Dad and the rest of the family can fund a 529 account, getting the student a savings account can double the efforts. If a student is working through school, a Roth IRA allows either a child or parent to contribute to the child’s Roth IRA. Contributions are limited to the amount the child earned that year, or $5,500, whichever is less. Unlike a 529, there are no restrictions no use of funds disbursed from a Roth IRA. But not all disbursements from a Roth IRA are tax free. While the amount contributed skips the taxes, the earnings from interest will be subject to income tax (if the total withdrawn, plus other income, is less than the standard deduction of $6,300). Roth IRA’s also fly under the radar when it comes time for FAFSA, the Free Application for Federal Student Aid, since retirement accounts don’t count as a student asset that impacts financial aid elibigility.
- Save by shopping: As college costs increase, financial companies are offering products to make it easier for families to save money. One program that presents a less conventional approach to savings is Sallie Mae’s Upromise program, a free-to-join program that helps earn cash for college by letting members earn at least 5 percent to a college savings account when making purchases with the Upromise credit card at any of more than 850 retailers, including Best Buy and Macy’s. Members also get 8 percent back when using the card at more than 10,000 affiliated restaurants and Upromise eCoupons allow members to save when grocery shopping. The money earned can be distributed in whatever way as the member prefers, be it funding a 529 plan, a high-yield savings account or an eligible student loan payment.