Save for college even in challenging times

Save for college even in challenging times
Key takeaways
Ever-rising cost of college

Tuition has been steadily rising, so it’s important to save, even a small amount, as soon as possible.

Tax advantages

Contributing to a 529 plan may help you reduce your state income taxes.

Investment choices

There are several investment options, so you can choose what they’re comfortable with.

With the cost of college rising yearly, it's important to start saving as soon as possible for a child’s education (or grandchild, niece, nephew, or family friend). With everyday expenses higher these days, negative economic news, and stock market ups and downs, it may not be easy to prioritize college savings with a 529 college savings plan. Here are some things to keep in mind.

The earlier, the better, and any amount helps

The earlier you start saving, the more time your money has the potential to grow. Any earnings in a 529 plan grow tax-free, which gives more of the money the opportunity to grow. A small amount is better than no amount. For instance, by the time a student reaches age 18, a $50 monthly contribution could grow to more than $19,000. While it may not seem like a lot, it’s better than a loan for that amount. Contributing $100 a month for 18 years could grow to more than $38,000.1

Tax benefits

Who doesn’t want a tax break? Contributing to a 529 plan may help you reduce state income taxes. Thirty-four states and the District of Columbia currently offer a state income tax deduction or tax credit. (Contributions to 529 plans are not federally tax deductible.) In most states that offer tax benefits, anyone who contributes to a 529 plan can get a state income tax deduction. In 10 states, however, only the plan account owner can claim a tax benefit. Get 529 tax benefits by state.

Smooth out market ups and downs

If you’re nervous about investing when the markets are down, think about the advantages of dollar cost averaging. More shares are purchased when prices are down and fewer when prices are high. Over the long term, it has the potential to even out the average cost per share. In essence, you’re making the market’s ups and downs work for you — rather than against you.

Many investment choices

A diversified investment portfolio can help mitigate the risks of a volatile market. If you’re less comfortable with risk and are more of a set-it-and-forget-it investor, an age-based portfolio may be a good choice. On the other hand, if you want to be aggressive (and you understand the risks), a static portfolio might be right.

A 529 plan isn’t bad for financial aid

Many think that savings will impact financial aid. In fact, a 529 plan has a minimal impact on financial aid. The federal aid formula assesses parental assets at a maximum rate of 5.64%. That means that, in general, for every $1,000 in a 529, the "expected family contribution" toward college costs could increase by only $56 at most.

Don’t miss out on the many features of a 529 college savings plan. You’ll be appreciative when your child or grandchild heads off to college.

Learn more about saving for college.


  • 1

    These hypothetical illustrations don’t represent the performance of a specific investment and assume 5% growth every year. Compounded growth is determined by multiplying the balance by 1.05 to show growth. There’s no compounded growth in the first year.

  • 2

    Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements, and certain withdrawals are subject to federal, state, and local taxes.

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