Families absorb a significant portion of the cost of paying for college for their children. In fact, for the first time in five years parent savings and income became the top source of college funding at 32%, surpassing scholarships and grants (30%), Sallie Mae reported.
With multiple options for saving, most families use a combination of different types of accounts, including personal savings, UGMA/UTMA custodial accounts, and 529 college savings plans. The 529 plan remains one of the most popular. In a 2015 College Savings Foundation survey, 51% of parents said saving is their top strategy to fund college, and 33% of respondents have established a 529 plan.
Indeed, new 529 accounts and assets have continued to grow steadily for years. From 2007 to 2014, assets doubled to $223.9 billion, the Investment Company Institute noted.
Still, choosing a savings vehicle can be confusing, especially when you are first developing a saving strategy. Different types of accounts offer a range of tax advantages and benefits. But some savings vehicles may be more beneficial depending on an individual’s financial situation.
Defining savings goals and needs can be a first step when making comparisons. Putnam’s saving selection tool employs frequently asked questions to provide some insight into the various types of plans.
The next challenge is the accumulation goal. Colleges publish tuition, fees, and room and board charges annually. Knowing what a four-year college may cost is an important guideline. This calculator can help guide savers with monthly goals and also help determine if their current savings plan is on track.
Whether parents have opened a college fund or are facing the first tuition bill, getting help from a financial advisor can be important.
Start saving early
As with most saving strategies, starting early is an advantage. College debt has been a catalyst for many to save. Younger parents, many of whom are paying off their own college debt, began saving early for their children’s education. The College Savings Foundation survey found 40% of parents age 31–35 have student debt, and 91% said that it made them consider other strategies for their children — including saving in 529 plans.