How to Save for College When You’re Living Paycheck to Paycheck

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Kathryn Flynn

By Kathryn Flynn

January 8, 2019

Almost 1 in 10 working Americans earning $100,000 or more live paycheck to paycheck, according to a report from CareerBuilder. With little or nothing left over after meeting financial obligations each month, saving for college might seem impossible. But, even a small amount invested wisely in a 529 plan can make a big difference when your child is ready for college.

Here are some ways even families on a tight budget can build substantial college savings.

Open a 529 plan as soon as possible

A 529 plan is a tax-advantaged investment account designed to help families save for college. Investment earnings grow tax-deferred and are not taxed when distributions are used to pay for qualified higher education expenses. The earlier you start making contributions to a 529 plan, the more time you have to benefit from tax-free compounding.

Start small

A college education is expensive, but most families do not pay the full sticker price. A smart rule of thumb is to aim to save 1/3 of projected college costs, and plan to cover the remaining 2/3 with student loans and current income. A college savings calculator can help you determine the monthly contribution amounts needed to meet your goal.

But, for families living paycheck to paycheck, even trying to save 1/3 of projected college costs might be unrealistic. Fortunately, many 529 plans have very small minimum contribution requirements, such as $15 or $25, or none at all. The most important thing is to start saving. Every dollar saved today is one less your child will have to borrow in student loans and pay back with interest.

Automate your savings, no matter how small

Scheduling regular automatic contributions to your 529 plan allows you to effortlessly put away money for college without even thinking about it. Most 529 plans allow you to link a bank account, and some employers offer payroll deduction for 529 plans. Your employer may also offer matching contributions to your 529 plan.

Start with a small amount and consider increasing your contributions when you get a raise, when your child outgrows diapers or when you are finished paying for day care. Families who invest as little as $25 every month in a 529 plan starting when their child is born will have close to $10,000 saved by the time the child is 18 (assuming a 6% annual investment return).

If you’re having trouble finding room in your budget, look for ways to cut expenses. You might be surprised at how much you can save each month by cancelling unused gym memberships, cable television and other subscriptions.

Take advantage of state benefits

Over 30 states offer a state income tax deduction or credit for 529 plan contributions. In seven of these states, residents are eligible to claim a tax benefit for contributing to any state’s 529 plan. Remember to invest any tax savings into your 529 plan to give your college savings an added boost.

A dozen states offer 529 plan grant programs that either provide matches on 529 plan contributions or seed new 529 plan accounts with an initial contribution.

Make lump sum deposits

529 plans do not require monthly contributions. You can deposit as much as you want, whenever you want, instead of or in addition to monthly contributions. Annual windfalls such as bonuses or tax refunds can be earmarked for college, as well as unexpected lump sums from lottery winnings or an inheritance. 

Ask for the gift of college

For birthdays, graduations, holidays and other gift-giving occasions, suggest the gift of college as an alternative to toys or other material things. Many 529 plan gifting platforms allow friends and family to make secure electronic deposits to a 529 plan account.

Keep in mind that funds saved in a 529 plan owned by anyone other than the parent count as income on the FAFSA when the funds are withdrawn to pay for college. To minimize the impact on eligibility for need-based financial aid, gifts should be contributed to a custodial 529 plan account or a parent-owned 529 plan account.

Sign up for Upromise

Upromise is a loyalty program that helps families earn cash back for college by shopping online, dining at participating restaurants and using the Upromise Mastercard. Upromise Members are eligible to earn additional rewards by linking an eligible 529 plan to their Upromise account.

Parents and grandparents can potentially save thousands of dollars each year with Upromise. For example, by simply using the Upromise Mastercard to pay for $1,000 per month on groceries from a participating online retailer and $200 per month on dining out at a participating restaurant parents can earn $1,200 in rewards over the year.

At, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.

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