How’s your college savings account looking these days? If the answer is, “Not so great,” you’re not alone. The good news is this: There may be more in your budget for college than you realize.
To get you started, we asked experts for five practical ways to find those extra dollars.
1. Use your tax refund.
This tax season, if a refund is coming your way, consider saving some of it for college. “It’s not to say the entire tax return goes into the college savings, but even part of it can make a difference,” says Tim Gorrell, executive director of the Ohio Tuition Trust Authority, which manages Ohio’s CollegeAdvantage 529 Plan.
Gorrell points out that families who save the average Ohio income tax refund each year—about $2,700—starting in middle school can end up with enough savings to fund 24 percent of in-state tuition by freshman year of college. Not too shabby. “It’s important to watch for those opportunities, like a tax refund, where you may find yourself with some extra dollars,” says Gorrell. “They can add up.”
2. That just-finished monthly payment.
When you finish paying off a car loan—or, say, a student loan—redirect the funds to college savings. “You’re already accustomed to paying that bill,” notes Gorrell. “Now, you can pay it to yourself.”
Similarly, a raise is another opportunity to increase college savings, adds Joe Messinger, co-founder and director of college planning for Capstone Wealth Partners. “Just like your contributions to your 401(k) increase when you get a raise, go ahead and increase your contributions to your college savings account.”
3. Hold the dessert.
Small sacrifices in lifestyle choices can also add up. You don’t have to forgo all fun; instead, just change it up a little. “Maybe you skip one takeout dinner a month or pass on dessert when you’re out to eat,” suggests Gorrell. “Once you start, it becomes your new normal and you won’t miss it.” Funnel those extra savings into the college fund instead.
4. Cash, please!
For your child’s birthday, holidays, and graduation, ask family to contribute toward your college savings. “Maybe part of the gift is cash toward college and part is a smaller gift,” suggests Gorrell. “That approach may not have the biggest bang, like getting the latest must-have gadget, but it’s much more meaningful for your teenager’s future.”
5. Summer earnings.
Most students end up contributing in some way toward the cost of college, so why not start now? “The key is to have the conversation with your teenager now,” says Messinger. “What do you expect them to pay toward the cost of college? Perhaps they will have to pay part of the tuition or maybe they earn their own walking-around money.” Encourage your teenager to start saving now by putting aside some earnings from a part-time job into a college savings account.
Use a Tax-Advantaged Plan
Last, but hardly least, it’s important to be sure you’re saving in a way that offers the most advantages. For many families, that’s a 529 college savings account. Like an IRA or a 401(k), money saved in a 529 plan grows tax free. Withdrawals are also tax-free when used to pay for tuition, room and board, or books and supplies, including computers.
What’s more, in many states—including Ohio—residents get a tax deduction when contributing to their state’s 529 account. In Ohio, for example, up to $4,000 per student per year is deductible from your state income taxes with the CollegeAdvantage 529 Plan. Grandparents and other family members can also take this deduction if they live in Ohio. Also note that money saved in a 529 account can be used to pay for college in any state, regardless of which plan you’ve invested in.
“Consider starting with the minimum contribution, which is $25 a month,” suggests Gorrell. “That’s basically skipping one takeout pizza dinner a month.” It all adds up!