1. Your goal is too vague
The best time to start saving for college is as early as possible, but most families have no idea where their newborn baby will attend college in 18 years. Because of this, parents often start a college fund with modest contributions of $25-100 a month – with no clear end goal in mind.
While this is a great way to get into the habit of saving, at some point parents need to focus on establishing a more solid plan. That doesn’t mean you need to decide on a particular school just yet, but maybe it’s time to think about how much you want to (and can afford to) pay for. That could mean planning to cover tuition for public or private, or 2-year or 4-year college, or simply giving a specific dollar amount.
Another common mistake parents make is shying away from saving because of sticker shock. If the total cost of a school seems out of reach, don’t worry! After grants and scholarships, families rarely end up paying the “sticker” price of colleges. A more realistic goal is to aim to save 25%, and find other sources to make up the difference. What’s more, saving too much can cost you if you end up having to take a non-qualified withdrawal from a 529 plan. When the money you take from your 529 plan is used for something other than qualified higher education expenses you’ll lose your tax benefits and also get stuck paying a 10% penalty on the earnings portion of the withdrawal.
Find your 529 plan - Select your state below
Did you know that residents are not limited to investing in their own state's plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state's plan and other options.
RELATED: The magic number for college savings