TL:DR
Let's talk about one of those big, looming monsters in the closet of parenting: college costs.
As of 2024, for students living on campus, the average cost of attending an in-state public 4-year college comes to around $27,146 per year, adding up to $108,584 over four years.
Out-of-state students face higher costs, paying about $45,708 annually, which totals $182,832 for four years.
Private, nonprofit universities come with an even heftier price tag—averaging $58,628 per year, or $234,512 over a four-year period.
After housing, college is one of the most expenses purchases many people will make. And maybe you're here because your child is about to graduate high-school and you are wondering how the years went by so fast while frantically trying to figure out how to afford a hefty 4-year tuition.
Or, maybe you're a new parent and trying to get a head start by putting away money for your newborn's future.
Regardless, we all know college is one of the most expensive purchases that an individual will make in his or her lifetime along with a mortgage. So, how can you outsmart college costs, keep your cool, and reduce stress in the process?
Yup, that inevitable stress ball that somehow finds its way into our lives, usually around the same time our kids start to eye those glossy college brochures.
But no worries! We've got the cheat codes to help you save up for your child's future without losing your sanity in the process.
Sit back, relax, and let's dive into the delightful world of financial planning for college – yeah, we're making finances sound exciting, who knew?
Start Early, Win Big
Remember that old adage, "the early bird catches the worm"? Well, in the realm of college savings, it's golden advice.
Did you know that the average cost for a student living on campus at a public 4-year college is $26,000 per year (roughly $104,000 for 4 years)? For example, let's say you can afford to invest $200.00 per month from birth until age 18 ($43,200.00), thanks to compound interest it will grow to $110,000.00; College covered!
So start squirreling away those pennies as soon as humanly possible. Compound interest is your secret superhero here. The earlier you start, the more time your money has to grow and work its magic.
Get Crafty with Budgeting
Yep, it's time to declutter your expenses. Trim the fat where you can – those unused subscriptions, eating out less frequently, brewing your own coffee (yes, goodbye, fancy coffee runs), and opting for staycations instead of globe-trotting IG-worthy vacations. Every penny saved is a step closer to your kid's diploma. You can also make it a fun, team effort by discussing cost-saving strategies with your kids!
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The Best 529 College Savings Plans
Okay, we are going to spend quite a bit of time here, but for very good reason. In case you are unfamiliar, a 529 College Savings Plan is a special type of tax-advantaged savings plan designed to prepare for future educational costs.
This nifty tax-advantaged plan lets your money grow, tax-free, as long as it's used for qualified education expenses. Plus, some states offer sweet perks, like tax deductions for contributing. It's like a savings account on steroids, minus the weird side effects.
Qualified Expenses for 529 Plans
However, they have evolved quite a bit since being introduced in 1996. Below are some of the qualified expenses that you can pay with a 529 plan.
Tuition fees: This covers the cost of attending an eligible educational institution. It includes tuition charges for both undergraduate and graduate programs.
Tuition for K-12 education: Up to $10,000 per student can be used for tuition at an elementary or secondary public, private, or religious school.
Vocational and trade schools: 529 plans are not only for four-year schools, but you can also use the funds for two-year colleges, trade schools, graduate schools and even a few international institutions
Room and board: If the beneficiary is enrolled at least half-time, room and board expenses can be covered. However, the amount eligible is limited to the institution's allowance for room and board as determined by the school or the actual amount charged if the student is living in on-campus housing.
Off campus housing: Off-campus housing and rentals are qualified up to the cost of room and board on campus. So for example, if on-campus housing is $900.00/mo, you can use up to $900.00/mo for off-campus housing.
Meal Plans: 529 funds can be used to pay for on-campus food and meal plans.
Books and supplies: Necessary books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.
Computers and related technology: Expenses for computer equipment, software, internet access, and peripherals, as long as they are used primarily by the beneficiary during their enrollment in an eligible educational institution.
Special needs equipment: Costs for special needs beneficiaries, including costs for equipment or services needed for their education.
Educational fees: Mandatory fees associated with enrollment or attendance at an eligible educational institution.
Student Loans: As of 2019 and thanks to the SECURE Act, you can use up to a lifetime limit of $10,000 in the 529 account (penalty free) to pay off a portion of the beneficiary a sibling, or even parent's student loans. And yes, we know what you're thinking: the purpose of a 529 plan is to save in advance of post-secondary education expenses so that you can avoid taking out loans in the first place. However, we all know that life happens and there are unusual instances in which a family still ends up with some student debt. Thankfully, now 529 funds can be used to reduce that debt.
It's important to note that while these are generally accepted qualified expenses, it's always advisable to check with your specific 529 plan administrator to ensure compliance with the plan's terms and conditions and to verify that the expenses qualify under the IRS guidelines. Non-qualified expenses might incur taxes and penalties when using 529 funds.
Here is a list of the best 529 college savings plans for your child by state: Open the right 529 account for your child.
Just in case...what happens if my child doesn't attend college?
If you're worried about what happens if your child opts to not attend college or no longer needs the funds for whatever reason, instead of changing beneficiaries you can also roll those funds over into a retirement account without penalty!
Thanks to the SECURE 2.0 Act of 2022 , there is now a new option for 529 plan holders whose students might opt out of college: limited tax and penalty-free rollovers to Roth IRA accounts. This flexible feature can be a game-changer for account owners. But first, here are some key things to know:
The 529 account must have been open for over 15 years.
The eligible rollover amount must have been in the 529 account for at least 5 years.
The annual rollover limit is capped at the Roth IRA contribution limits ($7,000 for 2024; $8,000 for individuals aged 50 and older).
There’s a lifetime rollover limit of $35,000 for each beneficiary of a 529 account.
Rollovers can only be made to the Roth IRA account owned by the named beneficiary of the 529 account.
We talked about this more here.
Automate, Because Adulting is Hard
Life's chaotic, we get it. That's why setting up automatic transfers into your 529 college savings account is a total game-changer. Treat it like a subscription service – you know, like Netflix, but instead of binging shows, you're binging on peace of mind for your child's future.
Hello, Scholarships and Grants
Encourage your offspring to aim for scholarships and grants. There are zillions out there for various skills, talents, backgrounds, and even being left-handed (no, seriously!). Free money? Yes, please!
Consider Alternative Routes
Who said college had to be the traditional four-year extravaganza? Community colleges, online courses, and vocational training programs can be fantastic and cost-effective alternatives. Think outside of the box!
Breathe...
Lastly, take a breather. Parenting is a marathon, not a sprint. You're doing great, and stressing about the future won't change a thing. Celebrate the small wins along the way and trust that you're laying the groundwork for your child's bright future.
Saving for your child's college doesn't have to be a hair-pulling, stress-inducing affair. With a dash of planning, a sprinkle of creativity, and a whole lot of determination, you can tackle this like a pro. So, let's raise our coffee mugs (home-brewed, of course) to smart savings and stress-free parenting!
Remember, you've got this!
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