You can do it
This fall, millions of American students will enter college for the first time. For many of them, their college journey began when loved ones started planning and saving to make the college dream a reality.
Like you, these families had lots of questions along the way. And that's why we're here—to help you get started with your college planning. It only takes 3 steps, so you can begin today.
- Find the right kind of account for your college savings.
- Choose investments for your account.
- Open the account online.
Test your knowledge!
When it comes to saving for college, there are a lot of myths out there. What's true? What's false? We have the answers.
Only rich people can save for college.
False. About half of all American families are currently saving for college. And you don't need a lot of money to get started. The most important thing you can do right now is to take the same first step they did: Open an account.
Scholarships or financial aid will pay for college.
Most likely false. Getting a full scholarship or enough financial aid to cover the whole cost of college is unlikely. Only a small percentage of students have their entire tuition covered, let alone housing, books, and fees. (And, in case you were wondering, an even smaller number of students pay for college by winning the lottery.)
I can start saving no matter how old my kid is.
True. It's never too late to start saving for college. The more you save now, the less you'll have to borrow. So if your child is in high school, don't let that stop you.
I'll lose the money if I don't use it for college.
False. Even if you save in a type of account that's specifically meant for college, you can use the money to pay for many trade and vocational school expenses. Or you can give the money to someone else (a qualified family member) to use for college or even graduate school. Even the least flexible account types will give you your money back for whatever reason, no questions asked, although you may have to pay taxes or penalties on any amount your account has earned (but not on your contributions).*
It's easy to get started.
True. It's easy to figure out what account type best fits your needs. As for figuring out which college meal plan to choose … we can't help you with that.
I'll miss out on financial aid if I save for college.
False. The amount you've saved for college or any other goal has much less of an impact on your financial aid than your overall income does. In other words: If your income is high enough, you'll be expected to pay for at least part of your kid's college expenses, whether you bothered to save anything or not.
Questions? No need to raise your hand—ask away
How much am I going to need?
You don't need much to get started, and the total amount you save depends on your family's goals and resources. It's something you can think about now or as college approaches—but it's probably not as much as you think.
How much do I need to know about investing to manage a college account?
Some types of investments can be managed for you, like age-based options designed for saving for higher education, offered through 529 plans. But it's also good to have some basic investing knowledge—it's not hard to learn, and it will help you save for any goal. We'll teach you a few important things you need to understand.
How should I balance college saving with retirement and other goals?
There's a definite order in which you should approach financial goals. We've spelled it out.
Am I going to lose this money if I don't use it for college?
Nope. Depending on whether you get tax breaks for your college savings, you might have to give up some of your earnings, but not any of the money you've saved.*
When's the best time to start saving for college?
The earlier you tackle college saving, the better off you'll be. The best time is now.
What's the best kind of account for college savings?
For most people, it's a 529 account, and here's why—tax breaks equate to more money in your account and less you have to borrow. But you have options.
We're here to help
Talk with one of our education savings specialists.
Monday to Friday
8 a.m. to 9 p.m., Eastern time
Get the basics on college saving
WHERE DOES COLLEGE FIT INTO YOUR PRIORITIES?
You can change the beneficiary of your account at any time as long as the new beneficiary is a qualified family member of the original beneficiary. Here is a partial list of relatives that are considered qualified family members according to the IRS:
- Brother, sister, stepbrother, stepsister, half-brother or half-sister.
- Son, daughter (descendant of either).
- Father, mother, or an ancestor of either.
- Son-in-law, daughter-in-law, brother-in-law, or sister-in-law.
- Beneficiary's spouse or the spouse of any individual listed above.
- First cousin.
The investment returns you accumulate on the savings in your account.
On December 22, 2017, the president signed new tax legislation into law. The following describes several new provisions related specifically to 529 plan accounts, beginning with the 2018 tax year:
- Account owners can use assets to pay for qualified K-12 expenses up to $10,000 per year per student.
- Account owners can treat K-12 withdrawals as qualified expenses with respect to the federal tax benefit. The tax treatment of such withdrawals at the state level (determined by the taxpayer’s state of residence) is less clear, and states may ultimately determine the treatment of these withdrawals independently. Account owners should consult their tax advisors for further guidance.
- Account owners can roll over 529 plans to ABLE plans, up to the ABLE annual contribution limit. States may need to expand the definition of qualified withdrawals to include rollovers into ABLE plans. Without a change to the definition, such rollovers could be categorized as nonqualified withdrawals.
We'll provide more information as additional details about the effects of the tax bill become clear. We encourage you to consult a qualified tax advisor about your personal situation.