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It's Never too Late... or too Early to Start Saving Money for College

It's Never too Late... or too Early to Start Saving Money for College

It is a phrase that I hear over and over again, “my child is in the (insert grade here) it is too late for me to start saving for college. 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 State income tax deductions for those who purchase or enroll in one of Michigan’s 529 plans.

Two of Michigan’s 529 plans are the Michigan Education Trust (MET), which is a prepaid tuition plan, and the Michigan Education Savings Program, which is a direct-sold investment savings account.

Both 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.

Parents do not have to choose from their own State’s 529 plans, but Michigan residents will only receive the 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.

What now?

Now that you have a plan in place you need to take action. Remember how quickly your child grew 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.

You can also find out more about the MET program on MET's website or the MESP program on MESP's website.