Dos and Don’ts When Saving for College
As parents, we always want the best for our children. But in the busy eighteen years from birth through high school graduation, sometimes preparation for a child’s future higher education gets put on the back burner. Start saving for college to make the college and career years easier for you and your child. Here are some tips to help you on the way.
Do: Open an Account in the NC 529® Plan to Start Saving for College
This is a terrific first step to saving for your child’s college education. Designating whatever amount you can afford to put aside in an account especially for your child’s college fund is a commitment and a good mental tool to keep you focused over the long term. Saving in an Account in the NC 529 Plan means the earnings on your Account will be free from federal and North Carolina income taxes as long as you use your savings for paying qualified higher education expenses.
Don’t: Wait until the Last Minute
An early start on contributing regularly to your college savings account can make it easier. Though you can open an account for your child at any time, two popular times for families to get started are soon after the birth of a child or when the child starts kindergarten. By starting well in advance of college, you can harness the power of compound interest to help build your savings. Use our Savings Calculator to see what it would take for you to reach your savings goals.
There’s also a College Savings Planner that estimates the cost of colleges and universities in the future. But, don’t panic. Rarely do families have to cover the entire cost of college themselves; though most have to pay their share. Other resources are generally available from federal, state, colleges and universities, and community organizations to assist with cost if there is need.
Do: Keep an Eye on Your Account
Periodically check your college savings account. Seeing what you have available towards college can help you and your child keep your sights on that college goal. Of course, investment balances can fluctuate given the activity of the market, but reviewing regularly can help you decide whether you might want to increase your contributions. Don’t just set it and forget it. As college gets closer, a regular review will also help you and your child be realistic about how much, in addition to current income, will be available to help with college expenses.
Don’t: Assume Your Child Will Earn Scholarships or Grants
Receiving scholarships and grants can be a real help in paying for college. It’s a good idea to explore these options as ways to help pay for college; however, many are competitive and you can’t be guaranteed your child will receive one. Some are available based on financial need and some are merit-based (based on things such as academic achievement, athletic talent, leadership, musical ability) or special criteria such as disability status, military service, or where you live. Still, applying is definitely worth a try to add to money your child can use for college.
Do: Regularly Contribute Money to Your Savings
When daily priorities get in the way of long-term savings goals, you may find yourself falling behind in contributing to your account. A good way to stay on track is to set up an automatic investment plan. You can authorize the NC 529 Plan to periodically draft from a checking or savings account you have with a financial institution belonging to the Automated Clearing House (ACH). You just give the NC 529 Plan directions for when and how much to debit from your financial institution to your NC 529 Account. Another way to know your contributions are going in regularly is if your employer offers payroll deduction to help you contribute to the NC 529 Plan. More than 300 North Carolina employers work with the NC 529 Plan to send in employees’ contributions.
Either way, you can be comfortable that money is going in regularly, but don’t forget to look periodically at the contribution amount you’ve designated. Perhaps you get a raise and have some discretionary money available – that’s a good time to increase your instructions on how much to contribute. You can make changes at any time.
Don’t: Use Your Retirement Fund to Pay for College
As a parent, you certainly want to do everything in your power to give your child a great start in life. But think carefully (and talk with a financial advisor) before using your retirement money to help finance college. It may be hard to replace that money and, with your retirement funds reduced, your child may later end up having to assist you when you retire. Instead, save money while your child is young, help him or her apply for scholarships, grants, and even loans if necessary, and consider other sources available to help pay for college such as an installment payment plan or part time work.
Don’t leave your child’s higher education to chance. Visit the NC 529 Plan website today for more information on how you can start saving for college!