If you’re planning on covering some or all of these expenses, know that there are ways to supercharge your efforts. The following tips can help you stretch your savings a little further.
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If your kids are on the younger side
Open a 529 plan.
A 529 plan offers a tax-friendly way to save for your kids’ college education. Available through individual states, these investment and savings accounts allow your contributions to grow tax-free. You also won’t be taxed on withdrawals if the money is used to pay for qualifying education expenses. This includes everything from tuition to textbooks. Some states even allow for tax-deductible contributions.
Another option may be a 529 prepaid plan, which lets you prepay a portion of tuition at an in-state school at today’s current tuition rate. Either way, 529 plans incentivize saving by throwing in some significant tax breaks.
A 529 plan is structured as an investment account, which is a good thing because compound interest can help your money grow over the long term. The downside is that you may not have much wiggle room when it comes to selecting the investments within your 529. A Roth IRA, on the other hand, allows for greater flexibility and more investment choices. This type of retirement account is funded with after-tax dollars, which means you can use this money for whatever you like — including college. Just know that doing so will leave less money left over for retirement income.
Roth IRAs do have some drawbacks, though. There are contribution limits to contend with, so you’ll likely be able to save more in a 529. But if your state doesn’t offer a 529 with extra tax advantages, a Roth IRA could be a great alternative.
The latest Covid relief bill included an expansion of the Child Tax Credit. This increased it to $3,000 per child for kids over age 6; $3,600 for kids under 6 years old. Working families qualify if their annual income doesn’t exceed $150,000. This credit normally comes through when you file your yearly tax return, but that changed in 2021.
Beginning July 15, 2021, most families began receiving it in installments — usually to the tune of $250 or $300 per month for each eligible child. You might consider funneling these monthly payments directly into your kids’ college savings accounts. (Thanks, Uncle Sam!)
If your child is almost college-bound
If your child is able to earn college credit in high school, those courses can reduce their college workload. That translates to fewer classes and reduced expenses. Signing up for dual enrollment opportunities can help prepare your child for college while bringing down your total out-of-pocket costs. With dual enrollment, high school kids can enroll in college courses and receive credit that can apply to their future degree. Check with your child’s guidance counselor for more information.
Consider a local college.
Tuition is usually the biggest expense that parents think about, but room and board is right behind it. The average cost at a public college is $11,620 per year, according to College Data. You can eliminate that bill altogether if your child chooses to live at home while getting their college education. It’s one reason to consider local campuses. If your child does move away, splitting rent with roommates in an off-campus apartment may be cheaper than living in a dorm, but it all depends. Run the numbers to see what makes the most financial sense.
If your child is already attending college
Let your child chip in.
Your child can also put money toward their college education by way of a part-time job or work-study program. The latter provides part-time work for students who demonstrate financial need. The work itself is usually geared toward community service or coincides with specific coursework. The program is facilitated by schools that are enrolled in the Federal Work-Study Program, so it could pay off to see if your child’s college participates. If not, a traditional part-time job could enable them to chip in for certain education expenses.
Grants come in all shapes and sizes. Some are available through the federal or state governments; others are provided by nonprofit organizations, private groups, and certain colleges. No matter where they come from, grants unlock free sources of money that students can put toward their educational expenses. That means they don’t have to be repaid. But unlike scholarships, they’re generally need-based, meaning your child will likely have to demonstrate financial need. If they qualify, it could reduce their college expenses in a big way.
Saving for your kids’ college education is a big undertaking, but be sure not to sacrifice your own financial well-being in the process. DailyPay can help you along the way, allowing you to access your earned pay on your schedule.