Perhaps you’ve heard this Chinese proverb: the best time to plant a tree was 20 years ago. The second-best time is today.
Saving for college is just like that. Ideally, we all would have started the moment our children were born, but let’s face it—life gets in the way. Here’s the good news: It’s not too late and saving even a little bit each month can really go a long way toward funding your child’s college education.
And while you may be tempted to save for college in a regular savings account, there’s a better way to do it: using a tax-advantaged 529 plan.
You can think of a 529 like a 401(k), but just for college savings, says Timothy Gorrell, executive director of the Ohio Tuition Trust Authority, which manages Ohio’s 529 Plan, CollegeAdvantage.
As in a 401(k), the money you save in a 529 grows tax-free—and withdrawals are also tax-free, as long as the money is used for qualified education expenses. “This includes tuition, room and board, books, computers, and other mandatory supplies,” explains Gorrell.
What’s more, there’s no deadline for using the money in your 529 savings. “Money can be transferred from one beneficiary (student) to another, and you can use money saved in a 529 plan toward a bachelor’s degree, an associate’s degree, a graduate degree, additional certifications or a qualified apprenticeship,” says Gorrell.
So, what are you waiting for? Let’s get started!
5 Creative Ways to Save
Now that you know where to save the money, the question is how to find it? The answers might be hiding in plain sight. Here are five creative ways to “find” money for the college savings account that you may not have considered:
- Put retiring expenses back to work. Done paying off a car loan? Made the last braces payment? Paid off your student loans? Put some or all of that amount into the college account. It won’t even feel like a sacrifice because you were already not spending that money, right?
- Clean out the closets and donate the proceeds to the college fund. Are there items in your home that are no longer being used, but may have value to others? Re-activate your eBay account or have a good old fashioned garage sale. Bicycles, golf clubs and other sporting equipment became in high demand during the pandemic. Name brand clothing with the tags still on? That KitchenAid Mixer or Instant Pot you never use? Coins, baseball cards, or other collectibles? You’ll be surprised what treasures are lurking in your own home.
- Cash in on cash back rewards from your credit card. Do you use a credit card that offers cash rewards on the items you charge? Funnel those rewards right to your college savings plan. (That way, you’ll feel less guilty about that new pair of shoes!)
- Donate your raise or bonus. As you climb the ladder at work, donate a portion of your increased income or performance bonus to the college savings account. You’ll thank yourself later for sharing the wealth now.
- Skip one pizza night per month. Did you know that you can open up a 529 account with as little as $25 per month? That’s about what you’d spend on pizza take out for the family. And maybe, just maybe, your teens will make dinner for you one night each month, instead.
However you choose to go about it, one truth remains the same: “When it comes time to pay for college, some savings are better than no savings, and you’ll always be happy that you saved,” says Gorrell.