Financial Tools That Help Increase Your College Savings
If you or a child in your life is planning to pursue a higher education, the sooner you start building your college savings fund, the better. With the average annual cost of public and private tuition ranges from $10,662 to $42,162 respectively, and rising, it’s no wonder many turn to student loans to cover the cost. While tuition costs can be overwhelming, leveraging one or more of these tools now can help you save more over time, reducing or eliminating the need to incur student loan debt.
Make Regular Deposits Into A Traditional Savings Account
Building your colleges savings doesn’t have to be complicated. It can be as easy as making regular deposits into a savings account at your bank but it’s important to select the savings account that meets your needs. Some things to consider include an account that charges low or no fees, is easy to access, and one that pays a higher interest rate so your money can grow faster. If possible, make your saving automatic by setting up recurring automatic transfers to your savings account.
Invest in a 529 College Savings Plan
A 529 College Savings Plan is a state-sponsored investment plan that provides tax-free growth and withdrawals for qualified education expenses like tuition, books and room and board. While contributions are made using after-tax money, many states offer a state income tax deduction or credit for 529 plan contributions. While there may be residency restrictions for tax benefits, you are allowed to invest in any state’s 529 plan.
There are no annual contribution limits with 529 college savings plans. However, there are maximum aggregate limits (ranging from $235,000-$529,000). An individual may contribute up to the annual gift tax exclusion amount each year to each beneficiary’s account without incurring a gift tax. For 2024, this amounts to $18,000 ($36,000 for married couples). And, if for some reason you save more than is needed for college expenses, you will rest easy knowing up to $35,000 can be rolled over tax-free into a Roth IRA in the original beneficiary’s name. Likewise, balances can also be rolled over to a new beneficiary, tax free, if the new beneficiary is a member of the original beneficiary’s family.
Contribute to a Roth IRA
Roth IRAs are another college savings vehicle that can be used to pay for qualified education expense, such as tuition and fees, without penalty. Like a 529 college savings plan, Roth IRAs are funded with after-tax dollars, grow tax-free, and there is no penalty for education-related withdrawals. However, there are annual contribution limits with this type of account. In 2024, you may contribute up to $7,000 per year per beneficiary under 50 years of age. For those 50 and older, $8,000 is the annual limit.
Leverage the Coverdell Education Savings Account
Formerly known as an education IRA, a Coverdell Education Savings Account (ESA) is a savings plan for many education-related expenses such as tuition, books, and equipment. An ESA is a lot like a 529 college savings plan, but contributions are limited to $2,000 per year and they may only be used by contributors below certain income levels based on their adjusted gross income ($95,000 for single filers and $190,000 for married filers).
While obtaining a college education is expensive, there are many tools you can leverage to start saving now. Get started today by setting aside money to help you or a loved one cover upcoming college expenses. A Personal Banker from FNBO can help you get started. Call or stop by a branch today.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.