Paying your way through college is possible, even if you haven’t saved for years.
A college education is an investment in yourself that pays off in many ways. It opens up your career opportunities and can lead to a better salary. It can be worth your time and money to go to college for the first time or to further your education.
One of the best ways to save for college is with a 529 plan. This investment savings account offers numerous state and federal tax advantages. Our guide to 529 accounts helps you understand the benefits of opening one of these accounts.
529 Accounts Pave the Way for College Savings
A 529 plan is a tax-advantaged savings account that lets you save money specifically for college education. It is designed to maximize savings when you plan on attending college in the future.
34 states and the District of Columbia offer their own twist on the 529 plan with different fees and interest rates. There are two different types of plans: prepaid tuition and educated savings plans.
Prepaid tuition plans allow you to purchase college/university units at a fixed price. When you begin the program, the price you buy the units at will not change over time. Schools that participate in these programs can guarantee the price of these units. The money you save in this program can only be used for units, not room and board or other college expenses.
Educated savings plans function similar to a Roth IRA. They are investment accounts that put your money to work in the markets. With this kind of 529 account, what you earn is not subject to federal taxes. Where it differs is in its limitations.
You have no limits on contributions per year, and the limits on federal gift taxes are very high (up to $30,000 for couples). This means you and others can contribute to this account without fear of high taxation.
If you plan on attending college in the near future, the educated savings account gives you freedom to choose investments with higher returns. This gives you the chance to make more money in a shorter amount of time.
Both types of 529 accounts benefit from tax breaks. In some situations, you may not owe taxes when these funds are used to pay for your education. Contributions can be deducted from your taxes.
The long-term benefits of these plans are undeniable. The sooner you start investing in a 529 account, the more interest your account accrues. While you’ll likely experience the most gains after a few years, the money you invest in your 529 plan can be used as soon as you attend college.
For more information on 529 plans or to find an account in your state, go to the College Savings Plan Network.
Other Ways to Save for College
With a 529 plan started, you can make the most of other opportunities.
Student Loans
Student loans are always a viable option for reducing the upfront costs of tuition. The problem many students run into is borrowing too much. Only borrow as much as you can afford. Also, it’s important to consider the salary outcomes of your education.
If the job you want a degree for does not provide a salary that compensates the loan, then you might find yourself in greater debt than you want. There is no education that is worth a lifetime of debt.
Community College
Community college can be very affordable and provide the baseline education you need. You can get the general education requirements out of the way for a given field. You can also explore a variety of subjects and industries for much cheaper. This gives you exposure to many things you would not get if you committed to a degree at a four-year university.
With your associate’s degree taken care of or even a better idea of what education you want, you can significantly reduce the costs of a university degree.
Employee Education Support
Many companies offer to pay for a portion or all of an employee’s education. The stipulation might be that the degree cannot be post-graduate, above a certain cost or outside your employer’s purview.
If your employer does not offer an education program outright, you should ask if that is something they would consider.
The following companies offer tuition reimbursement programs:
- UPS
- Starbucks
- Wells Fargo
- Fidelity
- Verizon
- Comcast
Save for Tuition with Budgeting and the Right Bank Account
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