Regardless of your child's age, there's always time to enhance your college savings strategy. Whether you're just starting with a newborn or facing the imminent reality of college with a high schooler, there are effective strategies you can start using today to help pay for college.
From leveraging the power of compound interest in the early years to maximizing scholarships in high school, each age brings unique opportunities to better prepare for higher education costs. So let's explore savings strategies tailored to different stages of your child's life - from infancy to high school - so you can stay on track no matter when you begin.
When Your Child Is Young (0-5 Years)
College may seem like a distant concern when your child is still in diapers, but this is actually the best time to start saving. The key advantage at this stage is time. For example, if you start saving $200 per month when your child is born and earn an average 6% annual return, you could have over $70,000 by the time they're 18.
- Open Tax-Advantaged Accounts - Consider opening a 529 Plan or a Coverdell ESA to start putting away money as soon as possible. When withdrawn for qualified education expenses, these accounts allow your savings to grow tax-free. Some states also offer tax deductions for 529 contributions.
- Automate Contributions - Set up automatic monthly contributions to a college savings account, even if it's a small amount. Automating the process ensures that you're consistently saving without having to think about it every month.
- Leverage Gift Contributions - Encourage family members, such as grandparents, to contribute to your child's college savings fund instead of buying toys or clothes for birthdays and holidays. Many 529 Plans allow third parties to contribute directly, making it easy for loved ones to help build your child's education fund.
- Consider a Growth Focus - At this early stage, most experts suggest an investment strategy that emphasizes growth. Since you have many years before the funds will be needed, you can afford to take on more risk by investing in stocks and equity-based funds, which have historically offered higher returns over the long term.
Elementary and Middle School Years
As your child enters elementary school, you still have a long runway to save for college. Still, you may need to adjust your strategy to account for other financial priorities during this phase, such as school expenses, extracurricular activities, or saving for different financial goals.
- Increase Contributions When Possible - If your income has increased since your child was born, now is an excellent time to boost your contributions to their college savings account. Even a modest monthly increase can significantly impact your total savings over time.
- Take Advantage of Tax Benefits - Contributions to certain college savings accounts, like 529 Plans, may be eligible for state tax deductions or credits. Research your state's rules to maximize your savings and tax benefits.
- Reassess Your Investment Allocation - While your approach may continue to focus on growth overall, you may want to begin gradually shifting your investment portfolio toward a slightly more balanced mix. For example, you might move some of your investments into bond funds or other less volatile options to protect against potential market downturns.
- Monitor Your Progress - Regularly review your savings progress to ensure you're on track to meet your goals. Use online calculators to estimate how much your current savings will grow and whether you'll need to increase your contributions to stay on target.
- Consider Prepaid Tuition Plans - Some states offer prepaid tuition plans that allow you to lock in tuition rates at current prices at select schools. Research whether this option is available in your state and may suit your child's likely college choice.
Last-Minute Saving Tips for High School Parents
By the time your child enters high school, college is just around the corner. While the window for aggressive growth investments has narrowed, you can still implement strategies to maximize your savings and prepare for upcoming expenses.
- Consider Conservative Investments - As college approaches, shifting a larger portion of your savings into conservative, stable investments such as bonds or money market funds may be wise. This reallocation reduces the risk of losing a significant portion of your savings to market volatility right before you need the funds.
- Look for Scholarship Opportunities - Scholarships can significantly "boost" your college savings by reducing the cost of school. Encourage your child to apply for scholarships - ideally before their senior year.
- Explore Dual Enrollment and AP Courses - If your child is still in high school, explore options such as dual enrollment or Advanced Placement (AP) courses that allow students to earn college credits while still in high school. These credits can work to ensure that your student graduates in four years or, for students attending community college, may directly reduce the cost of their degree.
- Consider Part-Time Work - If your child is old enough, encourage them to take on a part-time job during high school. The earnings can be used to cover expenses that would otherwise draw from your savings, such as application fees, testing fees, or even a portion of college tuition.
- Max Out Tax-Advantaged Accounts - If you're approaching the end of your college savings window, consider maxing out any remaining contributions to your 529 Plan or Coverdell ESA. This step allows you to take full advantage of tax benefits before your child heads off to college.
The Takeaway
By following these age-based strategies, you can build a solid financial foundation for your child's education, regardless of when or how they choose to pursue it. Remember, every family's situation is unique, so don't hesitate to consult with a financial advisor to create a personalized college savings plan that works best for you.
