As we enter the month of September, we’re typically celebrating the start of school and the beginning of college football season. While the landscapes of schooling and college football look a bit different this Fall, one thing remains the same: September is National College Savings Month.
We recognize College Savings Month to emphasize the importance of saving early and saving often when planning for the future.
Three Tips to Promote College Savings
- Start saving early.
Put time on your side. Starting to save early is one the of biggest advantages when planning for college. The compounding effect of early saving will pay off in 10, 15 or 18 years when your student enters college.
- Save systematically.
Set up automatic monthly contributions so your savings are set on autopilot. With that being said, your personal financial priorities, like emergency and retirement savings, should not be sacrificed to fund college. Even small contributions made consistently over time can make a significant impact and reduce the need for borrowing.
- Utilize crowdfunding.
Oftentimes, when birthdays and holidays roll around, family and friends ask what they can purchase for your child. A great alternative to traditional gifts is a deposit into your child’s college savings account, which will give the account assets an added boost.
College Savings Vehicles
Now that we’ve discussed the importance of college savings and tactics to help get started, let’s review the most popular funding vehicle options available.
529 College Savings Plans are one of the most popular funding vehicle options. 529 plans are similar to a traditional investment account, and you bear the investment risk. With a 529 plan, an investor can ultimately use the full value of the account at public or private colleges and universities nationwide and, in some cases, internationally. You have the flexibility to invest in any state 529 plan; however, if your state has a state income tax, it is likely most advantageous to enroll in your state 529 plan to benefit from a state income tax deduction.
Prepaid Tuition Plans allow you to pre-pay future college costs today, which helps hedge against inflationary risk associated with the ever-increasing college tuition rates. The state bears the investment risk. While not offered in every state, it’s an option worth considering if your state does offer such a plan and if you prefer a more certain savings option.
Review the chart below to learn more about how 529 Plans and Prepaid Tuition Plans compare.
If you have any questions or would like additional information on college funding options, reach out to one of our financial planners today! You can also learn more by viewing some of our additional college funding resources.
You should not assume that any information provided serves as the receipt of, or as a substitute for, personalized investment advice from Warren Averett. This information should be used as a reference only. Talk to your Warren Averett advisor, or a professional advisor of your choosing, for guidance specific to your situation.