It's never too early to save for college
Investing in higher education can give your child, or you, a new outlook on life and advantages for the future. Here are some tips that you can think about when saving for future schooling needs:
- Saving for your own retirement is more important than saving for college. Your children will have more sources of money for college than you will have for your golden years, so don't sacrifice your retirement savings.
- The sooner you start saving, the better. Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years will yield $48,000, assuming an 8% average annual return.
- Stocks are best for your college savings portfolio. With tuition costs rising faster than inflation, a portfolio tilted toward stocks is the best way to build enough savings in the long term. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.\
- You don't have to save the entire cost of four years of college. Federal, state, and private grants and loans can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify.
- With mutual funds, investing for college is simple. Investing in mutual funds puts a professional in charge of your savings so that you don't have to watch the markets daily.
- 529 savings plans are another option to consider for college saving. Qualified withdrawals are now free of federal tax. Plus, there are no income limitations or age restrictions, which means you can start a 529 no matter how much you make or how old your beneficiary is.
- Tax breaks are almost as good as grants. You may be able to take two federal tax credits – the American Opportunity Tax Credit and Lifetime Learning Credit – in the years you pay tuition.
- The approval process for college loans is more lenient than for other loans. Late payments on your credit record aren't automatic grounds for refusal of a college loan.
- Lenders can be flexible when it's time to repay. There are still ways to cut costs after you graduate and begin repaying your student loans. For instance, there is often a one-quarter percentage point interest rate decrease if you set up automatic debit, in which monthly payments are automatically taken from your account.
- Taxpayers with student loans get a tax break. You may deduct the interest you pay up to $2,500 a year if your modified adjusted gross income is less than $70,000 if you're single, or less than $145,000 if you're married filing jointly. The deduction can be taken for the life of the loan.
Even if the timetable is short to save for your child or yourself, it's never too late to start. SWSFCU offers savings options that can help you pay for higher education and we offer a scholarship program every spring.