Back to School and Saving for College

By Kaitlyn Szabo August 17, 2018

From kindergarten to university, no matter which school year your child is entering, there is a lot to do to prepare for the school year. Here are some tips to keep costs down and to help you save for any future educational expenses.

Back to School Shopping

After holiday shopping, back to school shopping is the second largest spending season of the year for most Americans. Here are ways to get the most bang for your buck!

  • Do a “supply sweep” of items and make an inventory of everything you already have. Bring this list with you when you go shopping for new supplies, so you don’t buy any duplicate items.

  • Check out weekly flyers at places you routinely shop to find good deals at places you already go to anyways, such as the grocery store. Doing this can save you time, money, and gas.

  • Spread out your shopping over a few weeks, including waiting until September or October for non-urgent supplies to get savings after the initial rush.

  • Spend more on quality items like backpacks that will need to last the entire year. Save money on supplies like notecards that you will replace more often.

  • Buy in bulk or pool your resources with friends and family to save money and reduce waste.

College Savings: 529 Plans and ESAs

The ever-rising costs of a college education and the scary prospect of taking out student loans is a terrifying future for many families. To help combat this fear, here are two popular savings methods for college.

The first is a 529 plan, which is a college savings account that is exempt from federal taxes and is designed to help taxpayers save for educational expenses on behalf of a designated beneficiary, most typically a child or grandchild. There are two types of 529s: investment savings and prepaid tuition. The investment account is more common than the prepaid option. Contributions are not tax-deductible, but investment earnings are tax-deferred, and distributions for qualified educational expenses are tax-free. Funds can be used to pay for tuition, certain housing costs, computers, books, and supplies.

The Minnesota College Savings Plan is the state-sponsored 529 plan. It is available to any citizen or taxpayer. With this plan, investors can open an account for as little as $25 or $15 automatic payroll deductions per pay period. There are no application, sales, or maintenance fees.

Another option for education savings is a Coverdell Education Savings Account (ESA). This account is similar to 529 plans in that qualified withdrawals are tax-free, but contributions are limited to $2,000/year, and contributions must stop once the beneficiary reaches the age of 18.

If you do choose to begin saving for a child’s college expenses now, you likely will want to use a variety of savings methods beyond the ones above. Other options include traditional savings accounts, Roth IRAs, certificates of deposits, savings bonds, or trusts.

 

Money Management E-Newsletter: August 2018