COLLEGE SAVINGS 101

Savingforcollege.com

College Savings by the Numbers
http://www.savingforcollege.com/articles/college-savings-by-the-numbers-939

Posted: 2016-05-27

by Keith Bernhardt, vice president of college planning at Fidelity

"Happy 529 Day!" This may not be a greeting you've heard before, but for families actively saving for college, it may be one worth recognizing this year.

529 Day is an excellent annual reminder of the importance of saving for college, and the unique benefits of a 529 college savings plan. This May 29th, I challenge you to think about how much you want to save for college, the strategies you're using to do so, and any extra steps you can take to boost your efforts even by a small amount. To help you think this through, and in honor of 5/29, I've compiled a few of my favorite facts and tricks of the trade.

5 Reasons to Take a Fresh Look at College Savings

  1. More parents than ever are saving for college, but are they saving enough? Fidelity's latest research finds that on average, parents are aiming to cover roughly two thirds of their children's anticipated college costs. But they're currently on track to reach just 27% of that goal.i That's a big disconnect. Make time to take a look at your own goals for college, and how on track you are to meet them.
  2. With so many day-to-day priorities, we all recognize that saving for college is a challenge. Make sure you're using all the tools in your arsenal to save as effectively as possible. A tax-advantaged 529 plan is a great way for families to save. These plans sponsored by a state or a state agency can be used for education related expenses like books and on-campus housing. Earnings in 529 accounts grow federal income tax deferred and may also qualify for state deductions. Seventy-four percent of familiesii who take advantage of these accounts say that doing so helps keep them on track with their college saving efforts.
  3. Another vote for saving in a 529 college savings account: parents saving in a 529 plan tend to save more. Parents with 529 plans for their children save a median of nearly 40% more each year toward college.iii
  4. We can learn a thing or two from Millennials. Likely driven by their own experiences with student loan debt, parents born between 1981 and 1997 are adopting smart saving habits at a higher rate than their older counterparts. Of all age demographics, Millennials are most likely to be saving in a 529 college savings account, save monthly and have raised the percentage they save each month over the past year.iv
  5. Believe it: The more you save now, the more options you'll have when it comes time to make college decisions. Do your homework, and don't be deterred or distracted by the many myths about saving for college. I've debunked some of the most common misconceptions in my article, "Don't Let These Myths Muddle College Savings."

RELATED: Are parents getting savvier about saving for college?

2 Important Conversations about College

  1. With your kids. You may think you have all the time in the world before your kids are headed to college, but it's important to bring them into the college conversation earlier rather than later when it comes to planning. Include them in discussions about college savings expectations and how you can reach your goals as a family; open conversation is instrumental in setting goals and guidelines. Some topics to consider:
    • How much do you plan on covering? How much do you expect your child to contribute?
    • What expectations do you have once your son or daughter begins school? Do you expect them to work part-time while taking classes? Attend a state school? Maintain a certain GPA?
    • Do they understand how college choices may impact how much they take on in student loans and what that means following graduation?
  2. With family and friends. Fidelity research found that 90% of grandparents said they would be happy to contribute to college savings if asked.v But less than a third of families report that they have asked friends and family to consider gifting to college savings. Contributions at birthdays or other holidays are often welcome suggestions for family and friends, in lieu of (or in addition to!) another toy or video game.

RELATED: The biggest college planning mistake parents make

9 Ways to Boost Your Savings and Tackle Your College Goal

  1. There are some great online calculators (like Fidelity's College Savings Calculator) that can help you determine whether or not you're on track with your savings goals. Find out where you stand today, and what you should be aiming to save moving forward.
  2. Think of contributions to a college fund like a monthly bill that needs to be paid. Automatically deducting money from your paycheck or from a checking account into college savings can turn contributions from a chore into a routine.
  3. Aim for a $50 per month savings increase. Just how much could this add up? If a family saved $350 a month instead of $300, this would equal up to $4,200 a year. Over 18 years, they'd contribute $75,600. If they received a 6% rate of return, they'd earn $59,974 in interest over 18 years. So their combined contributions, coupled with earned interest would amount to about $135,574. Over the course of 19 years, that $50 increase would amount to an additional $19,368 to put towards the cost of college.vi
  4. Not sure where that $50 could come from? How about a recent tax return? According to the IRS, the average tax return in 2015 was $3,120.vii This year, consider allocating your return, or a portion of your return, into a college savings account. Bonuses, raises, or even foregoing a couple of lunches out each month can also free up extra savings.
  5. One of my favorites cash back rewards credit cards. You're already spending, why not earn at the same time? From gas fill-ups and groceries to vacations and day-care, families have another opportunity to add to their college savings. Earmark rewards dollars for college and commit to contributing them to your 529 savings account.
  6. As part of that important conversation with your kids about the cost of college, consider asking them to put aside a percentage of money they earn from summer or after-school jobs toward college. For younger children, consider the same for monetary gifts they receive at birthdays or other holidays.
  7. Connect with friends and family members on similar savings journeys. Creating an impromptu "college savings support group" may open the door to new savings tips and strategies that you haven't yet considered. Use your network of friends and family to exchange ideas and perhaps do it while enjoying your favorite meal or drink! College planning doesn't have to be boring.
  8. Revisit how your savings is invested. If you have a 529 college savings account, or other investments dedicated to college savings, make sure to check in regularly on your investment strategy to make sure you are properly allocated, factoring in your risk tolerance and how long you have to save.
  9. Talk to a professional. There are so many great resources out there to help you put a plan in place and make saving for college more manageable. School guidance offices, college planning professionals and financial specialists like our team at Fidelity are here to help. You don't have to go it alone.

RELATED: The price of procrastination: 7 reasons to start saving today

# # #

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Fidelity Brokerage Services LLC, Member NYSE, SIPC,
900 Salem Street, Smithfield, RI 02917

736529.1.0
2016 FMR LLC. All rights reserved.


iFidelity Investments, "2015 College Savings Indicator," September 2015
iiFidelity Investments, "2015 College Savings Indicator," September 2015
iiiFidelity Investments, "2015 College Savings Indicator," September 2015
ivFidelity Investments, "2015 College Savings Indicator," September 2015
vFidelity Investments, "Grandparents and College Savings Study," June 2014
viFidelity Investments, "Viewpoints: Are you saving enough for college?," April 2016
viiIR-2015-34, Feb. 26, 2015

"Happy 529 Day!" This may not be a greeting you've heard before, but for families actively saving for college, it may be one worth recognizing this year.

529 Day is an excellent annual reminder of the importance of saving for college, and the unique benefits of a 529 college savings plan. This May 29th, I challenge you to think about how much you want to save for college, the strategies you're using to do so, and any extra steps you can take to boost your efforts even by a small amount. To help you think this through, and in honor of 5/29, I've compiled a few of my favorite facts and tricks of the trade.

5 Reasons to Take a Fresh Look at College Savings

  1. More parents than ever are saving for college, but are they saving enough? Fidelity's latest research finds that on average, parents are aiming to cover roughly two thirds of their children's anticipated college costs. But they're currently on track to reach just 27% of that goal.i That's a big disconnect. Make time to take a look at your own goals for college, and how on track you are to meet them.
  2. With so many day-to-day priorities, we all recognize that saving for college is a challenge. Make sure you're using all the tools in your arsenal to save as effectively as possible. A tax-advantaged 529 plan is a great way for families to save. These plans sponsored by a state or a state agency can be used for education related expenses like books and on-campus housing. Earnings in 529 accounts grow federal income tax deferred and may also qualify for state deductions. Seventy-four percent of familiesii who take advantage of these accounts say that doing so helps keep them on track with their college saving efforts.
  3. Another vote for saving in a 529 college savings account: parents saving in a 529 plan tend to save more. Parents with 529 plans for their children save a median of nearly 40% more each year toward college.iii
  4. We can learn a thing or two from Millennials. Likely driven by their own experiences with student loan debt, parents born between 1981 and 1997 are adopting smart saving habits at a higher rate than their older counterparts. Of all age demographics, Millennials are most likely to be saving in a 529 college savings account, save monthly and have raised the percentage they save each month over the past year.iv
  5. Believe it: The more you save now, the more options you'll have when it comes time to make college decisions. Do your homework, and don't be deterred or distracted by the many myths about saving for college. I've debunked some of the most common misconceptions in my article, "Don't Let These Myths Muddle College Savings."

RELATED: Are parents getting savvier about saving for college?

2 Important Conversations about College

  1. With your kids. You may think you have all the time in the world before your kids are headed to college, but it's important to bring them into the college conversation earlier rather than later when it comes to planning. Include them in discussions about college savings expectations and how you can reach your goals as a family; open conversation is instrumental in setting goals and guidelines. Some topics to consider:
    • How much do you plan on covering? How much do you expect your child to contribute?
    • What expectations do you have once your son or daughter begins school? Do you expect them to work part-time while taking classes? Attend a state school? Maintain a certain GPA?
    • Do they understand how college choices may impact how much they take on in student loans and what that means following graduation?
  2. With family and friends. Fidelity research found that 90% of grandparents said they would be happy to contribute to college savings if asked.v But less than a third of families report that they have asked friends and family to consider gifting to college savings. Contributions at birthdays or other holidays are often welcome suggestions for family and friends, in lieu of (or in addition to!) another toy or video game.

RELATED: The biggest college planning mistake parents make

9 Ways to Boost Your Savings and Tackle Your College Goal

  1. There are some great online calculators (like Fidelity's College Savings Calculator) that can help you determine whether or not you're on track with your savings goals. Find out where you stand today, and what you should be aiming to save moving forward.
  2. Think of contributions to a college fund like a monthly bill that needs to be paid. Automatically deducting money from your paycheck or from a checking account into college savings can turn contributions from a chore into a routine.
  3. Aim for a $50 per month savings increase. Just how much could this add up? If a family saved $350 a month instead of $300, this would equal up to $4,200 a year. Over 18 years, they'd contribute $75,600. If they received a 6% rate of return, they'd earn $59,974 in interest over 18 years. So their combined contributions, coupled with earned interest would amount to about $135,574. Over the course of 19 years, that $50 increase would amount to an additional $19,368 to put towards the cost of college.vi
  4. Not sure where that $50 could come from? How about a recent tax return? According to the IRS, the average tax return in 2015 was $3,120.vii This year, consider allocating your return, or a portion of your return, into a college savings account. Bonuses, raises, or even foregoing a couple of lunches out each month can also free up extra savings.
  5. One of my favorites cash back rewards credit cards. You're already spending, why not earn at the same time? From gas fill-ups and groceries to vacations and day-care, families have another opportunity to add to their college savings. Earmark rewards dollars for college and commit to contributing them to your 529 savings account.
  6. As part of that important conversation with your kids about the cost of college, consider asking them to put aside a percentage of money they earn from summer or after-school jobs toward college. For younger children, consider the same for monetary gifts they receive at birthdays or other holidays.
  7. Connect with friends and family members on similar savings journeys. Creating an impromptu "college savings support group" may open the door to new savings tips and strategies that you haven't yet considered. Use your network of friends and family to exchange ideas and perhaps do it while enjoying your favorite meal or drink! College planning doesn't have to be boring.
  8. Revisit how your savings is invested. If you have a 529 college savings account, or other investments dedicated to college savings, make sure to check in regularly on your investment strategy to make sure you are properly allocated, factoring in your risk tolerance and how long you have to save.
  9. Talk to a professional. There are so many great resources out there to help you put a plan in place and make saving for college more manageable. School guidance offices, college planning professionals and financial specialists like our team at Fidelity are here to help. You don't have to go it alone.

RELATED: The price of procrastination: 7 reasons to start saving today

# # #

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Fidelity Brokerage Services LLC, Member NYSE, SIPC,
900 Salem Street, Smithfield, RI 02917

736529.1.0
2016 FMR LLC. All rights reserved.


iFidelity Investments, "2015 College Savings Indicator," September 2015
iiFidelity Investments, "2015 College Savings Indicator," September 2015
iiiFidelity Investments, "2015 College Savings Indicator," September 2015
ivFidelity Investments, "2015 College Savings Indicator," September 2015
vFidelity Investments, "Grandparents and College Savings Study," June 2014
viFidelity Investments, "Viewpoints: Are you saving enough for college?," April 2016
viiIR-2015-34, Feb. 26, 2015

 

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