Saving for your child's education is a wise investment. By starting early, you can reduce the amount you'll need to borrow later and repay with interest.
Add to your savings regularly to maximize your investment. Even saving a little can help in the long run.
There are numerous ways to save for college. Many people use more than one.
529 investment plans, like MEFA's U.Fund are tax advantaged plans designed to pay for qualified higher education expenses. Distributions used for qualified education expenses are federal income tax free.- Prepaid tuition programs, such as MEFA's U.Plan allow you to lock in current tuition and mandatory fees. Your investment will be guaranteed to cover the same percentage of tuition as you pay at the time of purchase.
- Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act(UTMA) are accounts owned by a minor but managed by a custodian (usually a parent or guardian). Funds can be used for any expense for the benefit of the child, not just school, and the child ultimately controls the account. A portion of the withdrawals are taxed, at the child's rate.
- The Coverdell Education Savings Account can be used to save for qualified education expenses (tuition, books, fees, etc.) at private or public elementary schools, secondary schools, and colleges or universities. Distributions are tax free as long as they're used for qualified education expenses. Get more information about the Coverdell Education Savings Account (PLEASE NOTE: Clicking this link will take you away from the MEFA web site.) at the IRS web site.
- A regular savings account or CD at your bank is an easy and relatively safe way to save money over time, although any interest you earn will be taxed. With direct deposit, you may be able to automatically route a portion of your pay from each paycheck into your savings account or CD.
- Savings bonds are a safe way to save for education. When you buy EE and Series I bonds, some or all of the interest you earn is tax-free if used for qualified education expenses. Learn more about savings bonds for education (PLEASE NOTE: Clicking this link will take you away from the MEFA web site.) from the U.S. Department of the Treasury.
- Beat temptation. Arrange to have money automatically deposited from your paycheck into a college savings plan.
- Create a budget that includes regular contributions to college savings.
- Open a credit card that adds a percentage of your purchases to your 529 Plan. Learn more. (PLEASE NOTE: Clicking this link will take you away from the MEFA web site.)
- Ask relatives to contribute money to your child's college savings at holidays and birthdays.
- Match what you spend on a small pleasure in a college savings account. Small contributions add up: a $3 a day latte habit will cost you more than $1,000 a year.
- Bring your lunch to work. It can save you up to $3,000 a year.
- The next time you get a raise at work, automatically put half of it in savings. If you're not used to the money, you won't miss it.
- After you finish paying off a car or other loan, continue making payments in the same amount to your savings.
- Save with your child. Start a piggy bank and encourage your child to save regularly. Add whatever you save to a 529 plan annually.
- Reduce your debt. Debt level is not factored in to your Expected Family Contribution (EFC). Repaying debt now means you will be better prepared to meet your EFC.