There's no doubt that a college education can be costly. If you start planning and saving for college tuition as early as possible, you can benefit from various incentives and reduce the financial load later on.
First, estimate how much you need to save to meet college expenses. Then, research your savings options. Some college savings account options come with substantial tax benefits or other incentives. In each case, carefully consider the potential risks, costs, and limitations before investing any money. Examples include:
- Section 529 college savings plans. These programs, most often offered by individual state governments, carry many of the same federal tax benefits as Roth individual retirement accounts. There are two basic kinds of 529 plans: pre-paid tuition programs that allow savers to lock in today's prices for future tuition payments at designated universities, and traditional savings plans that allow families to contribute money into investments or Federal Deposit Insurance Corporation (FDIC)-insured deposit accounts. Under the FDIC's rules, in most cases, deposits that a 529-plan administrator places at a bank on behalf of different individuals are federally insured up to $250,000 for each participant.
- U.S. Savings Bonds. “One of the great things about Savings Bonds is that parents can purchase them through regular, recurring deductions from their salary or a bank account," said Elna Johns, an FDIC financial educator. The government backs Savings Bonds, but one tradeoff for the safety is a moderate rate of return. For qualifying taxpayers, the interest earned is exempt from state or local income tax, and the bonds may be exempt from federal income tax when used for education expenses.
- Credit card rebates and incentives. Some programs allow parents to receive rebates and other incentives for purchases made with a credit card or for shopping at particular merchants, with the rewards deposited into a college savings account. Be careful, though, not to let these relatively small rewards induce you to make purchases outside of your budget.
- Special savings programs. An increasing number of state and local government programs, often with assistance from nonprofit and philanthropic organizations, are providing incentives to help low-income families save for college. These initiatives typically involve grants or matching funds that go into a child's college savings account.
There are many resources available to help you, to include:
- Employee Assistance Programs (EAPs) – a great place to start your search for college savings information or other financial assistance.
- Internal Revenue Service – has helpful information about 529 Plans.
- Department of Education Federal Student Aid website – has a variety of resources about the costs of college and financial planning.
You can always contact your component EAP specialist or e-mail DHS work-life specialists at email@example.com for more information on programs that can help you manage and/or plan for tomorrow while saving for today.