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Teaming up with family and friends to save for college

  • By Fidelity Learning Center
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The high cost of a college education has many parents understandably concerned about their ability to pay for their children’s future college expenses. Many are also worried about burdening their children with hefty student loan debt. Yet simply hoping for the best won’t solve this challenge—you need a disciplined plan to help meet your family’s future college costs.

Of course, there is no rule that says parents are solely responsible for paying 100% of their children’s college education expenses. Enlisting the help of your family, friends, and your own children can reduce the burden on your shoulders, and with careful budgeting and creative strategies, you may be surprised to see how quickly a little savings can add up.

As you think about your options, consider these tips to help boost your college savings fund:

Get started as early as possible

It’s never too early to start saving for your children’s future college expenses. The earlier you start saving, the more time you allow for your savings to potentially grow and compound. You can start this process when your children are infants by establishing a dedicated college savings fund, such as a 529 college savings plan. Even if your children are older, it’s never too late to start saving for college.

To get your college savings fund off to a strong start, consider asking grandparents, aunts, uncles, and friends to donate to your child’s college savings fund in lieu of traditional gifts. If friends or co-workers are throwing you a baby shower, why not have them spread the word that contributions to your baby’s college savings fund would be welcome? Chances are that gift-givers will appreciate the convenience of simply writing a check or pooling funds for a group cash gift. Investors who maintain a Fidelity-managed 529 college saving plan can invite friends and family to make online gifts through a personalized college gifting page.

Of course, to achieve your college savings goals, you will also need to establish your own disciplined saving habits. One relatively easy way to do that is to set up automated monthly contributions. Whether it’s $50 a month or $500 a month, every contribution can help make a dent in your future college bills. Automatic contributions also help you prioritize growing your college savings fund over other potential uses for your money, such as vacations or entertainment.

Once you have established a dedicated college savings fund and have set up automatic monthly contributions, consider additional ways to supplement your savings, such as:

Recouping child-related expenses as you go: As your children mature from infants to toddlers to teenagers, they will accumulate many valuable items they no longer need. Rather than storing cribs, strollers, and car seats in the attic, consider auctioning these items off online or sell them through a local consignment shop. You can also donate items to charity and write off a portion of your original cost (assuming you itemize deductions on your federal tax return).

Putting tax refunds to work: If you normally receive an annual tax refund, consider using all or a portion of your check from Uncle Sam to supplement contributions to your child’s college savings fund. It may not be as fun as splurging at the shopping mall, but these additional contributions can make a big difference in the long run.

Redirecting former expenses into savings: As your children move from one life stage to another, certain expenses will go away. For example, when your child enters kindergarten, you may no longer need to pay for daycare. Redirecting the money you were already spending on daycare into your college savings fund is a painless way to turn a former expense into additional savings. Other opportunities to put this philosophy into practice occur when you pay off a car loan or if you are able to reduce commuting expenses due to a job change.

Encouraging the gift of education: Grandparents and other people close to your children may be naturally inclined to give your children toys, games, or clothing as gifts on birthdays or holidays. It’s up to you make it clear that, while those gifts are appreciated, contributions to your child’s college fund are preferred. Even small gifts from family and friends can add up over the years and boost your savings. You might even suggest that people who still want to give a traditional gift split the money they would have spent between a gift and a college fund contribution. While a check for college savings may not be as exciting to you child as unwrapping a new video game, it can be far more valuable to your children’s future.

Help your kids understand their role: As your children mature and start to grasp what college is all about, it’s important for them to understand how their college choices may affect their own financial future, including the potential student loan debts they may face. The College Conversations Checklist can help you kick-start discussions about the total cost of college and the implications of college choices. You may also want to encourage your children to have “skin in the game” by contributing a portion of their allowance or money they earn from part-time jobs to their college savings fund.

Team Up With Grandparents: According to Fidelity’s 2014 Grandparents and College Savings Study, 72% of grandparents think it’s important to help pay for their grandchildren’s college education, and more than half (53%) are currently contributing or planning to help them save.

Grandparents who have the financial means to make a significant contribution may want to consider front-loading their contributions to a grandchild’s 529 college savings plan. Grandparents can contribute five years' worth of annual $14,000 gifts for a total of up to $70,000 per grandparent, per beneficiary, without having to pay a gift tax or chipping away at the lifetime gift tax exclusion1. This allows more time for these savings to potentially grow tax deferred, while also reducing the grandparents’ taxable estate. However, if a grandparent were to pass away before five years have passed, annual gifts allocated to the years after his or her death would be included in their taxable estate.

Spend and save at the same time: Parents who choose to save for a child’s higher education with an eligible² Fidelity-managed 529 college savings plan can also earn two percent back³ on all net purchases on the Fidelity Investments 529 College Rewards® Visa Signature® Card. Cardholders can keep their savings working with them by linking the card to an account with their Fidelity-managed 529 Plan. Other family members can also link their rewards card to your children’s Fidelity-managed 529 Plans. From gas and groceries to vacations and meals out, these rewards provide a significant opportunity to add to your college savings fund.

Other family members can also link their rewards card to your children’s Fidelity-managed 529 Plans. From gas and groceries to vacations and meals out, these rewards provide a significant opportunity to add to your college savings fund.

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1. In order for an accelerated transfer to a 529 plan (for a given beneficiary) of $70,000 (or $140,000 combined for spouses who gift split) to result in no federal transfer tax and no use of any portion of the applicable federal transfer tax exemption and/or credit amounts, no further annual exclusion gifts and/or generation-skipping transfers to the same beneficiary may be made over the five-year period, and the transfer must be reported as a series of five equal annual transfers on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. If the donor dies within the five-year period, a portion of the transferred amount will be included in the donor's estate for estate tax purposes.
2. Eligible accounts include most nonretirement registrations as well as Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, Fidelity®-managed 529 College Savings Plan accounts and certain advisor-sold Fidelity®-managed 529 College Savings Plan accounts. The ability to contribute to an IRA or 529 college savings plan account is subject to IRS rules and specific program policies, including those on eligibility and annual and maximum contribution limits. The list of eligible registration types may change without notice at Fidelity's sole discretion. For more information about whether a particular registration is eligible, please call 800-FIDELITY (800-343-3548). Please contact your advisor to determine whether your advisor-sold Fidelity®-managed 529 College Savings Plan account is eligible for this program.
3. You will earn 2 points per dollar in net purchases (purchases minus credits and returns) that you charge. Account must be open and in good standing to earn and redeem rewards and benefits. The 2% rewards value applies only to points redeemed for a deposit into an eligible Fidelity account. The redemption value is different if you choose to redeem your points for other rewards. Other restrictions apply.
The creditor and issuer of this card is Elan Financial Services, pursuant to a license from Visa U.S.A. Inc.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Please carefully consider the plan's investment objectives, risks, charges, and expenses before investing. For this and other information on any 529 college savings plan managed by Fidelity, contact Fidelity for a free Fact Kit, or view one online. Read it carefully before you invest or send money.

The UNIQUE College Investing Plan, U.Fund College Investing Plan, Delaware College Investment Plan, and Fidelity Arizona College Savings Plan are offered by the state of New Hampshire, MEFA, the state of Delaware, and the Arizona Commission for Postsecondary Education, respectively, and managed by Fidelity Investments.

The UNIQUE College Investing Plan is offered by the state of New Hampshire and managed by Fidelity Investments. If you or the designated beneficiary is not a New Hampshire resident, you may want to consider, before investing, whether your state or the beneficiary's home state offers its residents a plan with alternate state tax advantages or other benefits.

Units of the portfolios are municipal securities and may be subject to market volatility and fluctuation.

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