How to Save Money for College

Expert Advice on Helping to Pay for Higher Education

By Everett Catts

Saving for your child’s future education may seem like a hopeless task. College tuition rates continue to rise, which can make paying for higher education feel unattainable.

But don’t give up hope. There are options available that can help you put money away for your child’s college years while also helping you during tax season. Here are a couple of expert-recommended steps you can take now to help guarantee a brighter future for your children.

Georgia Path 2 College 529 Plan

The first thing you should consider is setting up an account through the Georgia Path 2 College 529 Plan, which is the state’s only such plan that allows for tax-free savings for your child’s college education.

The plan allows parents to deduct up to $8,000 a year per child from their taxes to pay for their tuition, room and board, books, devices and so on, says Mitch Seabaugh, the plan’s executive director. Single parents can deduct up to $4,000 per child per year.

“Anybody who’s looked at the cost of college education here lately knows the average for a state school, four-year degree is pushing $100,000,” Seabaugh says. “College is expensive. The plan started in 2002 as a vehicle that could help parents save for college for their loved ones— children, grandchildren, nieces and nephews. This plan allows parents to work towards meeting that cost challenge they’re going to have.” .

The plan can be used for nearly every two-year and four-year college in the nation, plus study-abroad and postgraduate programs.

One benefit of such plans is that they can increase a child’s likelihood of attending college. “There was a study that a child that had a college savings account, regardless of the amount of money in it, was seven times more likely to go to college,” Seabaugh says.

Kevin McKane, a certified financial planner and chartered retirement plans specialist with Schultz Wealth Management of Janney in Buckhead, says he advises his clients to use Georgia’s 529 plan because of its aforementioned benefits. With parents being able to deduct up to $8,000 per child from the state income tax, “That really translates into a $400 to $500 tax benefit for that individual,” he added.

Education Investment Options

But Georgia’s 529 plan is just one way to save for your children’s education, McKane says. Another option is to max out the IRS’s gift tax exemption. In simple terms, this means that you can avoid paying taxes on monetary gifts or donations you make to your children’s education. For 2024, the exemption allows per-child contributions of $18,000 for single filers and $36,000 for joint filers.

“We use that as a great estate planning tool, especially for grandparents who want to lower their taxable estate,” he says.

In 2018, the law regarding Georgia’s 529 plan was amended to allow parents to also save for their child’s K-12 education. Relatives can set aside as much as $10,000 per child per year for that purpose. .

While McKane acknowledges that as a viable option, he advises his clients to take a different approach.

“We would rather see families fund toward the college education and rely on either cashflow or income to cover K-12 education versus taking it out and defeating the tax-deferred growth,” he says.

Georgia is not one of the 13 states that has laws allowing for Education Savings Accounts (ESAs), which are publicly funded, government-authorized savings accounts for K-12 education, according to edchoice.org. But if they qualify financially, Georgia parents can participate in a similar government subsidy program, McKane says.

Alternatively, parents and relatives can set up a Uniform Transfers to Minor Act (UTMA) account, which allows gifts like art and real estate to be transferred to a minor without establishing a trust, and has tax credits that a family can access for K-12 education, he says.

Do’s and Don’ts of Education Investing

McKane says there are several do’s and don’ts when it comes to saving for your children’s education: .

Do get a plan in place. “Do an education-savings analysis,” McKane says. “That way you know what college costs will be in today’s dollars and how much savings or additional savings you will need, based on what you’ve already put away. Then you’ll know what other contingent or alternative options are available to make a plan.” .
Do make monthly contributions. “Treat it like a 401K plan where you have money auto-drafted into the education savings,” he says.
Do encourage other family members and friends to donate to a child’s 529 plan instead of buying them a gift. “Anyone can contribute to a 529 on some one’s behalf,” he says.
Do consult with your accountant before making any withdrawals to pay for education-related expenses to confirm that they’re qualified under the plan.
Don’t start or stop investing based on market volatility, McKane says.

Now you’re ready to begin socking money away to help prepare for your child’s future.

Just make sure to talk to a financial adviser to ensure that you’re making the right decisions based on your family’s budget and needs.