Behind on college savings? Here’s how you can catch up.

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Kathryn Flynn

By Kathryn Flynn

October 3, 2018

With only 18 years to save and competing financial goals, many parents with good intentions fall behind on college savings. Although starting to save early is the best way to grow a 529 plan, there are some ways late-starters can catch up.

Up your 529 plan contributions

How much should you have in college savings? That will depend on your child’s age and the type of college they want to attend. Most families try to save around one-third of projected college costs, and plan to cover the remaining two-thirds with loans and current income.

To benchmark your progress, multiply your child’s age by $3,000, $5,000 or $7,000, depending on the type of college you are saving for:

  • In-state public 4-year college = $3,000 x beneficiary’s age
  • Out-of-state public 4-year college = $5,000 x beneficiary’s age
  • Private 4-year college = $7,000 x beneficiary’s age

If you’re on track to cover one-third of college costs, your current 529 plan balance will equal or exceed your answer above. If it’s not, you can use a college savings calculator to determine how much more you need to put away each month to reach the goal.

Claim a 529 state income tax deduction

More than 30 states, including the District of Columbia, offer a state income tax deduction or credit for 529 plan contributions. The amount you save on taxes can be invested in a 529 plan and will grow tax-free until it’s time to pay for college.

In most states, you may qualify for the tax benefit regardless of how long you hold funds in your 529 plan account. With this state tax deduction loophole, families can get a discount on college costs as high as 3%-10%, depending on where they live.

Ask for 529 plan contributions in lieu of gifts

Spread the word to friends and family that your child has a 529 plan and needs help saving for college. The older kids get, the harder it is for grandparents and other relatives to come up with gift ideas. A contribution to their 529 plan is more meaningful than cash and has the potential to grow over time. Many 529 plans now have gifting platforms that make it easy for parents to ask for gifts and allow secure electronic deposits.

However, parents of high school students should pay attention to the timing of gifts. Gifts to the student received after January 1 of the sophomore year of high school will count as cash support on the Free Application for Federal Student Aid (FAFSA). One workaround is to give the money to the parent, who can then contribute to the 529 plan. Cash support to the parents is not reported on the FAFSA. 

Get more financial aid

Well before your child completes the FAFSA, there are income-reducing strategies you can use to get more financial aid for college. The FAFSA looks at income from two-years prior when determining a student’s expected family contribution (EFC). For new college students, this “base year” typically begins January 1 of their sophomore year of high school. During this time, parents should avoid anything that would create additional reportable income – such as exercising stock options or taking retirement plan distributions.

Prepare to win scholarships

Another way to help bridge a college savings gap is to find scholarship opportunities. You can prepare your child for future scholarship applications by encouraging study habits that lead to good grades, helping to find volunteer activities, and promoting organizations like the National Junior Honors Society and the National Honors Society. Also, keep an eye out for sweepstakes, contests or other incentives offered by their state or 529 plan provider. Many states celebrate 529 Day on May 29, and National College Savings Month in September with program matching and other giveaways.

Students should start researching scholarships as soon as they complete their junior year of high school. Each scholarship will have its own deadline, so it’s important to keep looking on a regular basis throughout the college years.

A good place to start:

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