If you are a parent, you’ve probably wondered at some point about how to save for your child’s college education. Other questions you might ask yourself: “How much should I be saving?” “When do I start?”
Seeking the answers to those questions early on will help you maximize your dollars now so that you don’t have to play catch up in the future.
When to Begin Saving
As a mother of two kids (both of whom are still in elementary school), the idea of saving for college often feels like a distant thought. However, the reality is that more families are saving for college, and doing so earlier in life.
According to a recent Sallie Mae and Ipsos report, “Higher Ambitions: How America Plans for Post-secondary Education,” about half of high school families (48%) report having savings for their student’s future education. How much? On average, families have saved $26,266.
When did they start? Well,
- 44% of families with higher education savings said they started these savings accounts when the student was 6 years old or younger
- 32% started when the student was 7-12 years old
- 16% when the child was a teenager
Did you know? 78% of students said they’re more likely to attend post-secondary education if they know money has been set aside for them.
Ways to Start Saving
The good news is that families are saving for college, and many are doing so when their children are fairly young. But how are they doing it?
A third (31%) of families are taking advantage of 529 plans. Families using 529 college savings plans save on average $25,038.
These savings accounts can be one of the best places to stash money earmarked for college costs because you can contribute regularly (and automatically) and watch your money grow! The best part? The funds can be used tax-free when your kids go to school (if the money is spent on qualifying education expenses) which include tuition, certain room and board expenses, fees, and the cost of books, supplies, and equipment.
Other common ways families are saving for college include:
- General savings accounts, used by 42% of families (average savings of $13,270)
- Checking accounts, used by 22% of families (average savings of $9,010)
- CDs, used by 13% of families (average savings of $14,048)
- US savings bonds, used by 11% of families (average savings of $7,084)
- Noninstitutional savings, used by 6% of families (average savings of $7,910)
One in five families (21%) saving for education use investment vehicles such as stocks, bonds, Roth IRAs, traditional IRAs, and mutual funds and report having $21,105 in those accounts. One in ten families (11%) use a trust account and report an average of $13,717.
How to Find the Best College Savings Option
Before making any decisions, here is a list of items to consider when finding the right college saving option to best fit your families’ needs:
- Research and compare your saving options first
- Consider state and tax breaks on applicable savings accounts and 529 plans
- Consider account flexibility and access to funds
- Research contribution limits
- Identify “must have” features
- Other family member contributions allowed
- Joint ownership or transfer of account ownership allowed
Remember, starting early along with careful planning can set you and your family up for financial success – for college and beyond.