The cost of a college education can seem daunting. But the sooner you begin to save, the better. Small amounts of money, if invested early, can become sizable investments through the power of compounding.
And the good news is that there are a number of college savings options that offer tax advantages, such as earnings that grow tax-deferred and tax-free withdrawals on qualified educational expenses. In addition to the federal tax benefits of many college savings options, there may also be state tax benefits.
Regardless of the type of college savings plan you might choose, keep the following points in mind:
- College savings plans have fees and expenses that can affect your returns and should be considered when deciding what college savings options and underlying investments are right for you.
- Compared to saving for retirement, your college saving timeline is relatively short. At most, it may be 18 years. And for many people, it’s a lot less. This can impact your ability to weather a market decline and potentially increase your risk.
- Consider what will happen to your college savings if your child decides not to go to college, you have another child or you lose your job. These events and many others could dramatically impact your college savings strategy.
- Most college savings options have various restrictions and limitations that might impact your ability to react to a changing situation. Review carefully any college saving options to confirm that they have the flexibility and control you seek.
Ready to take the first step? Use our Education Savings Calculator to see how early and regular saving can make your money grow. When estimating future college costs, remember to factor tuition, room, board and books into your calculation.
If you know where you want your child to go to college, you can use the National Center for Education Statistics' school locator to research the current costs. If you’re unsure of where you want your child to go to college, you can learn more about general trends in college pricing from The College Board.