Here are steps to help you put a college savings plan in place
How much should I save?
Our College Savings Calculator asks 5 simple questions to help you create a customized estimate for your college costs. One thing to keep in mind—you can always borrow for college, but you can't borrow for retirement. Avoid dipping into your retirement savings to fund a college education. That money is meant to help safeguard your financial future, and once it's gone, you can't get it back.
While thinking about savings, it's also important to have a realistic college planning talk with your child. That means aligning your child’s college choice—and the costs involved —with his or her job goals, market opportunities, and likely starting salary. It's important for both you and your child to:
- Estimate total college costs
- Consider future student debt burden
- Balance those against future salary potential
This kind of planning can impact your "how much to save" discussions—before you jump into the "how to."
How should I save?
While there are different types of plans available for college savings, the 529 college savings plan is a tax-advantaged account that may be a good fit for your financial situation. Why? It offers fewer restrictions than other plans (no income or age limits; you can invest in any state’s plan), and you can set up regular, automatic contributions.
While parents are often the account holders, interested grandparents or family members and friends can also open a 529 (some plans offer gifting options, too). The annual gift limit is $14,000 per year, but with a 529 plan you can give $70,000 per beneficiary in a single year and treat it as if you were giving that lump sum over a 5-year period.1
You can invest in a 529 plan from any state and use that money at colleges across the country. Be sure to research your own state's plan for potential benefits, including in-state tax benefits.
Here are some of the other perks of a 529 to keep in mind:
Money invested in the account grows tax-deferred and qualified higher education expenses are federal income tax-free.
Cover more than tuition
Cover more than tuition
You can also use 529 funds to pay for room and board, books, and computers.2
529 funds can be used for qualified higher ed expenses at any eligible institution and may be transferred to any eligible family member of the original beneficiary.
529 plans offer a range of investments to help you meet your goals.
An accelerated transfer to a 529 plan (for a given beneficiary) of $75,000 (or $150,000 combined for spouses who gift split) will not result in federal transfer tax or use of any portion of the applicable federal transfer tax exemption and/or credit amounts if no further annual exclusion gifts and/or generation-skipping transfers to the same beneficiary are made over the five-year period and if the transfer is 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.
Investing involves risk, including risk of loss.
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