2018 Greater Lansing Baby Fair Diamond Sponsor: MET
It is never too late...or too early to start saving for college
It is a phrase that I hear over and over again, “my child is just a baby, I have plenty of time to start saving for college. I will do that later” OR “my child is in the (insert grade here) it is too late for me to start saving for college. If your child is young you do have a lot of time to save for college (which will work to your advantage), but you shouldn’t wait. You don’t want to get to senior year of high school and think you ran out of time.
While the best time to save for your child’s college education is when they are young, it really is never too late to start.
Having a college savings account, even a small one, increases the chance of a child attending college. According to a Center for Social Development-- George Warren School of Social Work study, even the smallest amount of savings can make a huge impact on children in low to moderate income households. “A [low to moderate income household] child with school savings of $1 to $499 before reaching college age is more than four times more likely to enroll in college than a child with no savings account.”
A college savings account not only increases the odds of a child enrolling in college, but it increases the odds of that child graduating from college. The same study indicated that a low to moderate income child “with school savings of $500 or more is about five times more likely to graduate from college than a child with no savings account.”
Now, I know what you are thinking—“$500 is not going to pay for my child to go to college.” You’re right, it is not. However, it is a starting point.
Now that we know even a small college savings account is better than nothing, where do you start?
One of the best ways to save is in a 529 plan. A 529 plan is an education savings plan. These plans are designed to help families set aside money for future education expenses. Earnings in a plan grow tax free and will not be taxed when the money is used for qualified education expenses.
In addition to federal tax benefits, the State of Michigan offers a state income tax deduction for those who purchase or enroll in one of Michigan’s 529 plans.
Michigan has three 529 plans: the Michigan Education Trust (MET), which is a prepaid tuition plan; the Michigan Education Savings Program, which is a direct-sold investment savings account and the MI 529 Advisor Plan (MAP) which is a broker-sold investment savings account.
All three plans can be used at in-state, out-of-state, public and private schools. MET allows purchasers to buy credits at today’s prices and use them for future tuition. MESP allows account holders to choose from nine different investment options; money can then be used to pay for tuition, fees, books, computers or room and board at any qualified institution. MAP allows account owners to work with a financial advisor to create their own portfolio; money can then be used the same way as MESP.
Parents do not have to choose from their own State’s 529 plans, but Michigan residents will only receive a state income tax deduction if they enroll in one of Michigan’s plans.
A 529 plan sounds great, but how can I afford it?
The first thing you need to do is realize that anything you save is a good thing. College is expensive and once you look at a College Savings Calculator you might get overwhelmed and give up, don’t. Figure out what your goals are. Do you want to be able to pay for one year of tuition? Tuition plus room and board? Community college? The calculator can help you figure out how much you should be saving to accomplish those goals.
Next, make a budget. There are a million websites and articles on how to make a budget or ways to save money, so I won’t bore you. But, think about small things—giving up one lunch out per week can save you almost $800 per year. Ask friends and family to contribute too. A child only needs so many video games or toys, why not have grandma put that money into your 529 account?
How about contributing all or part of your tax refund, bonuses or other windfalls?
Another easy way to save your money is to never see it in the first place. You can have automatic payments taken out of your bank account or you could set up a payroll deduction.
Did someone say, “free money”?
MET wants to make saving for college a little easier. MET is celebrating its’ 30th anniversary this year and to help celebrate they are giving away $30,000 in prizes to 10 lucky families. You can enter the “How We MET” Sweepstakes for a chance to win $3,000 towards your child’s future college education! You can enter at MET4College.org. If that doesn’t give you motivation to start saving for college, I don’t know what will!
Now that you have a plan in place you need to take action. See how fast your child is growing up? Don’t let another day, month or year go by—start saving.
MET and MESP offer webinars twice a month to explain both programs in detail and to offer you a chance to ask questions. You can find a schedule of these and other events on MET’s events page.