Building savings for college in this day and age can seem challenging, but we’re here to help. Saving for college is highly beneficial because it lets you or your loved one decrease the amount of debt taken on in student loans. Planning ahead will help offset the costs of tuition, books and supplies, and there are several tips that you can use to start creating a college fund for yourself or your child.
Buy Savings Bonds
One of the biggest benefits of savings bonds is that they're a low-risk way for people to invest their money, either for a beneficiary or for themselves. Anyone can buy a savings bond for someone else, making them a great gift for a parent or grandparent to give a child when they are young. Plus, the earnings are tax exempt at the state level and tax deferred at the federal level.
Typically, a bond is purchased at about $25, but the value of the bond appreciates to $50. Bonds can also be purchased for larger amounts, and the value will appreciate throughout its life. One of the downsides is that a savings bond takes many years to reach full maturity, so they're not the best gifts to give kids who are already in their teens because they won't be mature for many more years.
Invest in a Roth IRA
A Roth IRA is a type of investment plan in which the money can be used for several things. Typically, you might hear about Roth IRAs in connection to retirement plans, but you can also use them to save for college. Roth IRAs usually have a penalty for people who withdraw too soon. However, the 10% penalty is waived for people when they use the money for school-related items, such as tuition, books, and more. As with most types of investments, it's best to start early to earn enough money to pay for school.
Open a Separate Account
When you're trying to save for something this big, one of the easiest ways to ensure that you don't spend your savings on other things is to open a separate account. The benefits of opening a separate savings account is that it's simple to do, and you can immediately start earning interest on the money that you put in the account. You won't touch the funds once you deposit them, making it easier to build your assets.
This is an especially good option for an adolescent who has begun working an after school or summer job because it’s easy to set up. Plus, it's a great way for your teenagers to start learning about saving money, and they can take the money out as soon as they start college.
Parents and Family Members Can Open a 529 Savings Plan
If you're over the age of 17 and would like to help a minor with their future college expenses, a 529 savings account might be just the right thing for you. Anyone, including a parent, grandparent, cousin, friend or anyone else who knows the beneficiary can open a 529 account for when they go off to college.
Earnings grow tax-free and are not taxed when they’re used to pay for education. If you use if for other expenses, you will pay taxes and a 10 percent penalty on the earnings. A 529 account is that it's extremely flexible for the future student. The only requirement is that they go to a college that's eligible for federal student aid.
Start Investing in a Mutual Fund
Mutual funds are a way for people to invest in a range of financial assets with a lower risk. They're professionally managed, too. One of the biggest advantages to a mutual fund is that the money can be spent on anything. This type of investment can be used to save for college but isn't specifically designed for it.
You also need to be aware that the money that you gain in a mutual fund is subject to tax. This might be a suitable option for families whose income is too high to receive financial aid.
Most 529 plans are sponsored and administered by states. State tax benefits vary among the states, and some offer residents additional tax benefits if they invest in their own state plan. Please consult your tax advisor for more information.
Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA / SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Talk with Truliant
Call or schedule an appointment at one of our branches to speak to a representative about getting started saving for college or if you want a second opinion on what you already have in place.