HOW TO SAVE FOR COLLEGE
The good news: your child is likely heading to college down the road. The bad news: college costs continue to climb, as does the average debt accumulated by college students. Average annual costs for college these days (tuition, fees and room and board) can range from $20,000 to well over $50,000. So what can parents/guardians do to build savings? We have some tips!
We want to help you reach your savings goals. Let’s get started! Contact one of our North Shore Trust and Savings team members or stop by one of our convenient locations today.
RESEARCH TAX-FAVORED PLANS
Tax-favored plans like an Education Savings Account (ESA), 529 Plan, and a Uniform Transfer/Gift to Minors Act (UTMA) allow you to save for education expenses, while also savings on income taxes. Plans like these allow you to make regular contributions and often offer investment options beyond a traditional savings account. Plan benefits and limitations vary, so be sure to consult a tax adviser for assistance with selecting the type of account that is best for your situation.
INVEST IN MUTUAL FUNDS
Mutual funds are often one of the investment options available within education savings plans. Mutual Funds are a convenient way to build a diversified portfolio of stocks and bonds. However, be aware Mutual Funds come with the possibility of loss as the value fluctuates with the financial markets.
PURCHASE U.S. SAVINGS BONDS
Savings Bonds are a safe and secure way to save for education expenses. Money invested in Savings Bonds is guaranteed by the federal government, and the interest earned is non-taxable when used for qualified education expenses. If you decide not to use the Savings Bond proceeds for education expenses, interest earned will be considered income and be federally taxable.
OPEN A ROTH IRA
This savings plan has several advantages. Contributions can be withdrawn at any time and the typical 10% early withdrawal penalty is waived when the funds are spent on qualified higher education expenses. In addition, the value of an IRA is not considered an asset in the calculations used by Free Applications for Federal Student Aid (FAFSA). However, withdrawals to pay for college do count as “base-year” income, according to the FAFSA. Roth IRAs come with contribution limits based on income, so be sure to consult a tax adviser to see if you qualify.