Saving for School

Looking at today's college prices, paying for school can seem impossible. According to CNBC in 2017, it generally costs approximately $10K a year to go to a public school and almost $35K to go to a private school.¹ While there are a lot of options to help you pay, saving in advance is something to consider. A few ways you can save for school are:

• Personal funds
• Savings plans
• Savings accounts

Personal Funds

A personal fund is the simplest and probably the first option you'd think of. Essentially, it is regularly putting away money in the bank. Try to find ways to earn money so you can start saving. You could get a part-time job or do some extra work for your neighbors. The earlier you start saving, the better. Also, check with your parents if they've been keeping a savings account in your name – it's pretty common!

Savings Plans

There are many types of savings plans, but one of the most useful is the Section 529 plan. These plans are run either by the state or by an educational institution.² Their main use is to help families save for college costs in advance. With the December 2017 tax reform law, 529 plans can be used for K-12 education as well. Check with your parents to see if this is something they have already set-up for you.

A good example of a 529 is Illinois' Bright Start plan. It pays for various types of college costs including tuition, room, board, and textbooks. It is also tax deductible.

There's also a sub-type of the 529 called a prepaid tuition plan. In this plan, instead of saving for future costs, you or your parents buy tuition right then.² The tuition price is locked in and can be purchased for any duration. For example, if you prepay for three semesters now, you will not have additional fees should the cost of tuition increase. Simply put, you pay for future schooling at today's prices.⁹  Since college costs are on the rise, this plan might be worth consideration. It's worth noting that most prepaid plans require you to go to an in-state school. Make sure you understand the plan's requirements before making any decisions.²

Savings Accounts

You or your parents may also think about different types of savings accounts. We already covered standard accounts above, but there are a few more out there that can help you save for school.

The first of these is a Roth IRA (Individual Retirement Arrangement). I know what you're thinking. "Why should I start a retirement account when I haven't even graduated yet?" Well, Roth IRAs are useful for more than just retirement. They can give you a head start on college because they aren't taxed, and they can really grow over time.⁵ Roth IRAs can only be opened if you're earning money.⁶ However, this is easy to get around; your parents can simply open an account in your name.

The second is a Coverdell account. These accounts can be used for specific educational expenses for your whole education, from kindergarten to grad school. Overall, Coverdells are more flexible than 529 plans because you can use them for more than just college. You can also use them for non-tuition costs like books, but only if they're qualified.⁷ Finally, they are untaxed like Roth IRAs, unless you take money out for unqualified expenses. Expenses that aren't qualified include:⁸

• Room and board.
• Insurance.
• Medical/Student health fees.
• Transportation.
• Personal, family, or living expenses.
• Sports, games, hobbies, and non-credit courses that aren't part of your degree program.

Other Tips

Here are a few more tips for saving for college:

• Start saving as early as you can. The earlier you start, the more you'll cut back on costs.³
• Save as much money as possible.⁴
• Get on a savings schedule. For example, you could put away a set amount of money every month.⁴
• Don't feel you have to save to cover all four years! Grants, loans, and scholarships can help cover the rest.³
• Keep tax breaks in mind, as they can save you a lot. A tax break is an item that avoids taxes. Exemptions, deductions, and credits are all types of tax breaks. Many of them are available for students, so it doesn't hurt to see if you qualify.
• Never stop saving, even if you're only putting in small amounts!³

Sources

Infographic Source: https://www.fidelity.com/viewpoints/abcs-of-college-savings-plans

¹https://www.cnbc.com/2017/11/29/how-much-college-tuition-has-increased-from-1988-to-2018.html

²https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html

³http://www.savingforcollege.com/articles/5_college_savings_tips

⁴http://www.finaid.org/savings/tips.phtml

⁵https://www.rothira.com/what-is-a-roth-ira

⁶https://www.bankrate.com/finance/taxes/roth-ira-rules-what-are-they.aspx

⁷https://en.wikipedia.org/wiki/Coverdell_Education_Savings_Account

⁸https://www.irs.gov/credits-deductions/individuals/qualified-ed-expenses

⁹http://www.finaid.org/savings/529plans.phtml