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5 Methods To Save For Faculty Now

When it comes to student loans, my husband and I have opposing stories. While my tuition fees were partly paid by my parents and scholarship money, the rest came from student loans of $ 24,000. My husband, on the other hand, sailed through school without incurring a single cent in debt.

That's because his family had saved most of his life in a college fund. While I struggled to pay student loans and live on a tight budget after graduation, he focused on his passions and comfortably lived on a more modest income than mine.

September is the college savings month. Here are some of the best ways to save your child's college expenses – and how to include them in the process.

Types of College Savings Accounts

Start a 529

A 529 is a savings account specifically used for education-related expenses. Parents can contribute money to a 529, invest the proceeds, and receive a special tax break.

The 529 is a popular option for parents as many states offer tax credits or deductions on contributions. Tax credits vary depending on where you live. For example, Indiana offers a tax credit of $ 1,000 if you contribute $ 5,000, while Arizona residents can get a deduction of $ 5,000 for individuals or $ 10,000 for families.

There are seven states that do not allow tax credits or tax deductions, including California, Delaware, Hawaii, Kentucky, Maine, New Jersey, and North Carolina.

529 contributions are not deductible from your federal taxes. If you live in a state with no income tax, opening a 529 won't help you save money on taxes.

529 Funds can only be spent on education-related expenses, including tuition fees and textbooks. If this money is spent on ineligible fees, the family will have to pay a 10% penalty on their taxes. Traveling to and from college, paying for study abroad fees, and school supplies are some examples of unqualified expenses.

Since you can invest money in a 529 like you would in a retirement account, your contributions can grow over time. You can invest these contributions in an index fund or a mutual fund.

Many 529 vendors allow you to create a personalized URL so that others can add money to the account. For example, you could send this link before Christmas or your child's birthday to encourage grandparents and other relatives to contribute 529 instead of buying toys.

Anyone can save on a 529, even if they are not a parent, legal guardian, or immediate relative. They also receive the tax credit or tax deduction.

Each state has its own annual limit on 529, which ranges from $ 235,000 to $ 529,000. In general, because the limits are so high, you don't have to worry about going over them.

Roth IRA

Parents living in states without 529 can contribute to a Roth IRA. Contributions are deferred for tax purposes and there is no penalty for withdrawing student fees.

The annual contribution limit for a Roth IRA in 2020 is USD 6,000.

Encourage your child to save

Helping your child save for their own education will provide you with a valuable financial lesson. It will show them the importance of putting money away regularly and saving the patience. If they have a part-time job, encourage them to put a percentage of that money into their college funds.

If they get birthday or Christmas checks, convince them to put most of them into their college funds. Remember, your kids will barely remember the gifts they received for Christmas, but they will remember when to apply for college and pay tens of thousands of dollars in tuition. You could boost their saving habits by matching every dollar they invest.

Automatic saving

Putting away money for college is similar to saving for retirement or any other long-term goal. It's easier to save when you make it an automatic operation. Most 529s, IRAs, and other accounts allow you to set up automatic contributions from your checking or savings account.

Choose an amount that you would like to contribute each month. Whenever you save in a 529, try to save at least enough to get the maximum tax deduction or credit.

Open a cashback card

Instead of using a credit card to earn miles or other cashback rewards, open up a credit card that allows you to save specifically for a 529. Here are some options:

Fidelity® Rewards Visa Signature® card

The Fidelity® Rewards Visa Signature® card offers 2% cashback on all purchases, and cardholders can transfer this cashback to a Fidelity 529 account. If you spend $ 1,000 a month on the card, you'll earn $ 240 a year in cashback.

There is no limit to how much cashback you can earn and there is no annual fee. You'll need to create a Fidelity sponsored 529 account if you don't already have one.

Upromise Mastercard from Barclays

The Upromise Mastercard offers 1.25% cashback on all purchases and a $ 100 sign up bonus if you spend $ 500 within the first 90 days.

When you link the card to a 529 college savings plan, cashback receives a 15% increase. Spend $ 1,000 a month and earn $ 172.5 annually in cashback rewards.

This card also has a rounding function that allows you to round any transaction to the nearest dollar. The difference is deposited into your 529 and gives you 1.25% cashback. There is no annual fee.

Apply for scholarships

Once your child is in high school, they can apply for merit-based, on-demand scholarships to offset the cost of tuition. Students can seek scholarships at any time in high school, but should focus particularly on their junior and senior years.

Students can search national databases such as Scholly and FastWeb, but they can also try to find scholarships themselves. You can search for scholarships based on your particular interests, city or state, and other personal information. For example, if they are interested in computer programming, they can find computer programming scholarships.

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