College can be expensive. In fact, researchers at EducationData.org discovered that the average yearly price of tuition, fees, room, and board during the 2019-2020 academic year was $30,500.
That’s a whopping $122,000 over four years. Once you account for the fact that less than 40% of students actually complete a four-year degree in four years, the price of higher education skyrockets even higher.
No matter how old your student is (or how far away from high school graduation they may be), start saving today. It’s the best way for you to grow your college savings. With that in mind, let’s look at three ways you can save for higher education expenses.
1. 529 College Savings Plans
A 529 college savings plan is a tax-advantaged way for you to save for college and pay for higher education expenses for your children, any other student, or even yourself. Funds may generally be used to pay for any qualified college or higher ed expense, including tuition, room, board, fees, books, supplies, and equipment. The main drawback is that 529 plans do impact your student’s ability to receive financial aid.
Although many details of 529 college savings plans vary by state, they generally come in two forms:
- College savings plans, which can use the funds for qualified expenses at accredited institutions in the U.S. and overseas
- Prepaid tuition plans, which allow you to “freeze” tuition rates at eligible colleges or universities with a lump-sum investment or monthly payments. Since you’re paying for college in advance, you’ll avoid any tuition increases down the road.
Best of all, any money you invest in a 529 college savings plan grows tax-deferred. And, as long as funds are used to pay for qualified expenses, you won’t be hit with federal withdrawal taxes, fees, and penalties.*
2. Roth IRAs
Most people associate Roth IRAs with retirement, but they can be used to cover qualified educational expenses, too. As your Roth IRA has been established for more than five years, you can withdraw funds to pay for college and higher ed expenses without penalty while saving the rest for retirement.
This means that if you’re thinking about a Roth IRA to help pay for college, you’ll want to open it no later than the time your student completes 7th grade. And, to note, if you’re preparing to open a Roth IRA, its $6,000 annual contribution limit, won’t put much of a dent in the current cost of college. However, a Roth IRA could be an excellent component of a more extensive college-financing program.
Ready to learn more? Email us<email@example.com> or visit your local South Atlantic Bank branch location<https://www.southatlantic.bank/locations/> to see how a Roth IRA can grow over the years with regular deposits and interest compounding.
3. Interest-Earning Bank Accounts
If you’re more of a low-risk saver, a money market and savings account may be the right fit for you. Unlike investment plans, checking and savings accounts at member banks are fully insured by the FDIC, which means any money you have in one is covered up to $250,000.
When comparing interest-earning accounts, look for one with a low minimum balance requirement and a competitive interest rate. That way, your account balance will thrive until it’s time to pay for college expenses.
Regardless of which savings method you choose, the underlying message is what’s most important—begin saving for college now. That’s where we can help. Contact us to see how we can help jumpstart your college savings plan today.
—— DISCLAIMERS ——
* Plan disclosure documents contain this and other information about the plans and may be obtained by asking your financial professional.
Investments in 529 college savings plans are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested. Conditions, such as contribution limits, vary by plan. 529 college savings plans are subject to market risk and volatility. Accounts may lose or gain value. Diversification does not assure a profit or protect against loss