Boost growth in your college savings accounts
529 College Savings Plans are a great tool to help you save more for future college costs.
There are many growth opportunities because they’re built on investments, and you can defer (and hopefully avoid) taxes on the account earnings.
And by saving more now, you can reduce the need for college-related debt later, ultimately reducing your family’s out-of-pocket costs in the long run.
But how can you maximize your College 529 Savings Plan today?
1). Give yourself more time and let compounding work for you
The longer you save and invest, the greater your opportunity to earn more.
You can earn more through interest and investment gains like dividends and capital appreciation. That’s the power of compounding at work. Interest and earnings are added to your previous interest and earnings, and that compounding repeats itself over time, potentially multiplying your original account value.
If you have not already started saving, start now.
You can open an account at any time, listing yourself as the beneficiary. You can change the beneficiary at a later date as needed. You can start out with small amounts. And by automating your savings, you’ll have consistency, and you can build up your account faster, whether through payroll deduction or direct from your bank account. Those small, regular contributions can really add up over time.
Also, consider frontloading your accounts with lump sums in the early years – more dollars invested for longer time periods can significantly increase your account value too.
You can maximize your 529 College Savings Plan by finding ways to increase your contributions sooner rather than later. Boost your current savings by redirecting other income like bonuses, pay increases, tax refunds, etc.
To get an estimate of how your savings can grow over time, check out this compound interest calculator at Investor.gov
2). Keep your fees low
To maximize your 529 College Savings Plan, you’ll need to understand the fees involved.
As with other investment products, 529 Plans have fees. And the more you pay in fees, the less money you’ll have to invest and grow. You want more of your money working for you, not someone else.
But 529 College Savings Plans are not all the same. Some are more expensive while some are less expensive, so it’s important to know what you’re paying for and how much you’re paying. The general fee categories are:
- Asset-based fees – These encompass the annual costs to administer and manage the plan, along with the costs of the underlying mutual funds. For advisor-sold plans, there may be an expense range based on the different mutual fund share classes available in the plan. So, talk with your advisor regarding choosing the best share class option for you.
- Advisor fees – For advisor-based plans, this represents the commission or fee paid to your advisor. You may need to review the sales prospectus to find this information. Talk with your advisor to understand what their fee structure is. Some advisors have moved away from commissions or asset-based fees for 529 plans and may include their fee in other work they do for you or charge a flat fee, and in turn, they recommend a direct-sold plan.
- Service fees – These cover miscellaneous requests that only apply to those who use the services, such as requesting paper applications, account owner changes, etc.
Here is an example of an asset-based fee comparison for a direct-sold plan and an advisor-sold plan:
3). Make it easy for family, friends, and employers to contribute directly to your 529 account
When it comes to birthdays, holidays, and graduations, how about moving beyond gifts of toys, games, clothes, and just more stuff? Family members may really want to help with college savings but may not know the best way to go about it.
Online gifting platforms streamline the gifting process, making it super easy for others, including employers, to contribute directly to your 529 accounts. Here are a few of the available online platforms that your family members can use to help you maximize your 529 College Savings Plan:
- Ugift529 is a gifting platform for 529 Plans administered by Ascensus. Account owners receive a unique code for each beneficiary which can then be shared so that others can contribute to your plan. Users can contribute electronically or by mail.
- GoTuition is a 529 gifting platform operated by T. Rowe Price. The gifting page can be modified to show the beneficiary’s photo and milestones. Contributions can be made electronically or by mail. You can open a 529 account at T. Rowe Price with recurring contributions of $50 per month or with a $250 initial contribution.
- Gift of College is a service that allows for the purchase of physical gift cards as well as e-gift cards. Funds can also be deposited into your existing 529 accounts, regardless of the plan you have. Gift of College also has a service for users to exchange unused retailer gift cards and trade them for giftofcollege.com gift cards.
- Backer, the trade name for Principly, LLC, is an internet-based Registered Investment Adviser firm that can help you set up a new 529 College Savings Plan or advise you on your existing 529 account and link it to the Backer platform. Families can also earn cash rewards from retail partners that can be contributed to your 529 account.
- On Fidelity, you can set up a gifting page where friends and family members can send their contributions via an e-check. The minimum contribution is $5, and the maximum is $15,000.
Sample gift page image from Fidelity.com
Saving more now for less debt later
Saving money for college may feel like a huge hurdle. Your contributions seem like a drop-in-the-bucket compared to already sky-high college costs. But these strategies will help you maximize your 529 College Savings Plans now. Then, you’ll be well on your way to greater college funding success.