Saving for college can feel like staring at a giant puzzle with pieces that don’t quite fit together. As a parent, you want to be prepared, but figuring out how much to save and which funding options are best can be overwhelming. If you have young children, the uncertainty about their future educational path only adds to the challenge. To navigate this, we recommend weaving college savings into your broader financial plan. Think about your goals, model projected savings against future education costs, and set a specific target to aim for.

How Much Will Education Really Cost?

Let’s dive into the numbers. College costs are rising, so it’s crucial to understand what you’re up against. Check out the charts below that break down current expenses for both public and private schools, alongside recent inflation trends.

When estimating costs, don’t forget to consider financial aid. The Free Application for Federal Student Aid (FAFSA) can offer some relief. Even families with high incomes might find their students eligible for aid, depending on factors like family size and the number of siblings in school. For instance, in the 2021-2022 academic year, undergraduates received an average of $15,330 in financial aid—comprising $10,590 in grants, $2,780 in federal loans, $870 in education tax credits and deductions, and $90 from Federal Work-Study. Encourage your child to apply for merit-based scholarships too!

Which Savings Accounts Are Best?

There are several options for saving for college, each with its own set of benefits and drawbacks. 529 plans are a popular choice due to their tax advantages. They’re like Roth IRAs for education: you contribute after-tax dollars, and the money grows tax-deferred. When used for qualified expenses, the withdrawals are tax-free. However, some parents worry about what happens if their child doesn’t go to college. To counter this, many choose a mix of 529 plans and other accounts, such as taxable or custodial accounts, which offer more flexibility for various uses, including a down payment on a house or starting a business.

Be sure to start saving as early as possible, and consider setting up automatic contributions to avoid market timing risks.

Impact on Financial Aid

Keep in mind how your savings can affect financial aid. For example, assets in a 529 plan are treated differently than those in a custodial account when calculating aid eligibility. This can impact the amount of aid your child may receive, so plan accordingly.

Education Tax Benefits

Make the most of education-related tax benefits, such as the American Opportunity Credit and the Lifetime Learning Credit. These can help offset the cost of college and reduce your tax burden.

Prepaid Tuition Plans

Consider prepaid tuition plans, which allow families to lock in current tuition rates for future use. Compare these with 529 plans to see which option aligns best with your financial goals.

Planning for Graduate School

If your child is considering graduate school, be sure to factor this into your savings strategy. Graduate education often comes with different financial needs and options, so planning ahead can make a big difference.

Scholarships and Grants

Encourage your child to actively seek out scholarships and grants. There are numerous opportunities available that can significantly reduce college costs. Offer guidance on where to find these and how to apply effectively.

Cost-Saving Tips

Explore ways to reduce college expenses, such as starting at a community college or living at home. These strategies can help manage costs while still providing a high-quality education.

Early Financial Planning Discussions

Have open discussions with your child about their educational and career goals. Understanding their aspirations can help tailor your savings plan to meet their specific needs and ambitions.

Leftover 529 Funds

If you end up with extra funds in your 529 plan after college, you have options. You can transfer the funds to another family member’s 529 plan—like a sibling or cousin. This makes the plan a potential tool for legacy planning. However, be mindful of gift taxes, so it’s wise to consult with a CPA.

Starting in 2024, the SECURE Act 2.0 will allow you to roll over up to $35,000 from a 529 plan to a Roth IRA for the beneficiary. This rollover must be from a 529 plan that’s been open for at least 15 years and follows annual Roth IRA contribution limits ($6,500/year, or $7,500 for those 50+). It’s a great opportunity to kickstart retirement savings once your beneficiary has earned income.

Tailor Your Strategy

Everyone’s situation is unique, so it’s important to review your college savings strategy as part of your overall financial plan. This will help ensure you’re on track to meet your education funding goals. Interested in exploring how Evergreen can assist with education planning? Take our client compatibility survey and connect with an advisor to learn more.

DISCLOSURE: Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time. This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation are based upon current market conditions, reflect our judgment as of the date of this presentation, and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and Evergreen makes no representation as to its accuracy or completeness.