4 Top Ways to Start Saving for College Today

Deciding where and how to begin saving money for college doesn’t have to be an overwhelming experience. 

Indeed, you’ll find there are several ways you can prepare for the high price tags of college tuition and room and board. But if you’re thinking that it may be too late to get started, you’ll be happy to know there are several options for saving for college expenses — and you can get started right now.

Consider these plans for your college savings piggy bank:

1. 529 Savings Plan

Consider a state-sponsored plan with federal and state tax benefits when savings are used for qualified education expenses. The 529 savings plan offers earnings and withdrawals tax-free when the money is used for college-related expenses. There are two types of 529 savings plans: prepaid tuition plans and college savings plans

Some additional benefits of a 529 savings plan include the option of stating a beneficiary for receiving the funds at a designated time. In case your beneficiary decides not to continue their education past high school, you can either change the beneficiary or withdraw the money for your personal use. Consult with your financial advisor about using the money for non-educational expenses since there may be penalties.

Key advantages of a 529 savings plan:

  • These plans don’t have to be reported on the student’s FAFSA when the funds are withdrawn to pay for college. 
  • Withdrawals are tax-free for qualified educational expenses.
  • Annual withdrawals up to $10,000 for K-12 tuition are allowed without federal income tax or capital gains tax.

2. Qualified U.S. Savings Bonds

Qualified U.S. savings bonds are debt securities issued by the Department of the Treasury. Because the money is backed by the U.S. government, savings bonds are considered a safe investment with minimal risk. Although savings bonds don’t typically earn a substantial amount of interest, they are federally tax-deferred and state tax-free. 

Some bonds may be redeemed tax-free for qualifying higher education expenses such as the Series EE and I bonds purchased after 1989. You can invest up to $10,000 per year in savings bonds or up to $20,000 per married couple. However, interest earned is subject to federal income tax if the money is not used for college tuition or other qualifying college expenses.

3. Mutual Funds

Mutual funds remain a popular choice among investors since the money you invest is diversified among multiple companies of your choosing. Your money then builds based on the performance of those companies, and if you aren’t happy with the growth — or lack of — you can redistribute your funds to another area of interest.

Consult with a professional financial advisor to enroll in mutual funds and choose where to allocate your funds. Your financial specialist will advise you of your options, such as different securities, stocks, and bonds where your anticipated earnings will come from capital gains, dividends, and/or bond payments. 

Two reasons to consider investing in mutual funds:

  • Mutual fund savings can be used for anything, including travel, electronics, and vehicles.
  • There are no limits on investment amounts, and there are more than 10,000 investment options.

4. Coverdell Education Savings Account

The Coverdell Education Savings Account is similar to the 529 savings plan and is a trust or custodial account created for paying for educational expenses. The account requires a designated beneficiary and also covers elementary and secondary education expenses. Beneficiaries must be under the age of 18 or classified as a “special needs” beneficiary when establishing the account.

Advantages of the Coverdell Education Savings Account:

  • These accounts offer investment options with flexible terms that allow you to control your investments.
  • Regardless of the owner, the Coverdell ESA account is considered a parent asset on the FAFSA.
  • Annual withdrawals up to $10,000 are allowed for education expenses.

Start Building Today

It’s not too late to start building your college savings fund when you begin planning now for tomorrow. Consult with a trusted financial advisor who can help you decide which plan best meets your needs. By doing so, you or your beneficiary will reap the financial rewards of good choices and enjoy the benefits of a college education!