Spring Cleaning for College Accounts
Tax time is also a good time to do a spring cleanup to keep abreast of available earnings and savings for your student’s college plans.
Why It Matters
- Avoid surprises.
Periodic evaluation of savings and investments will help you avoid surprises at the most crucial moment — when you need to pay tuition bills. - Make changes in time.
With a couple of years before that first college bill hits, you still have time to make changes if you find you need to ramp up savings or change investment strategies. Your student’s ability to enter the desired education or training program will depend on coursework completed by the end of 11th grade and planned for 12th grade, particularly if multiple four-year colleges are under consideration. - Set realistic expectations.
When you know how much you really have available to assist your student with their college expenses, you can better manage expectations. If your student has their heart set on an expensive choice, it’s better for them to know now how the finances stand.
What You Need to Know
- Understand total amounts needed.
A good starting place is the net price calculator for colleges your student may be interested in. To find a college’s calculator, search online for the college name and “net price calculator.” Not all colleges use the same calculations, so be sure you understand how each college’s calculator works. - Calculate available savings and earnings.
Assess how much you and your student have already put away for college. Don’t forget about accounts or savings vehicles owned by or receiving contributions from relatives. Some typical college accounts include: 529 plans; Education Savings Accounts, such as Coverdell; savings accounts; savings bonds; and trust funds or other inheritances or gifts. - Decipher account limits.
Be sure you understand what types of expenses each of the college savings vehicles cover. You may be able to claim only tuition expenses, or you may receive reimbursements for a variety of qualified expenses, including off-campus housing, food and technology. You should also familiarize yourself with the steps you need to take to claim benefits.
What You Can Do
- Plan for increases.
Direct college costs (tuition and fees, plus housing and meals provided by the school) tend to increase by 2% or more per year. Plan for that increase between now and when your student will enter college, as well as for every year your student is in college. Don’t forget to also plan for extras, like membership and organization fees, transportation, computers, clothing and entertainment. - Open a 529 education savings account. (contributed by the Iowa Treasurer of State)
A 529 plan is an investment account you can use to save for qualified education expenses on behalf of a future scholar. As Iowa’s direct-sold 529 Plan, College Savings Iowa can help you achieve your savings goals and earn tax breaks along the way. Investment earnings grow tax-deferred, and if you are an Iowa taxpayer, you can deduct the first $4,028 you contribute per Beneficiary account from your state taxable income in 2024. The money invested can be used at any eligible education institution in the U.S. and abroad, including colleges, universities, trade schools, apprenticeship programs and more.
[To learn more about College Savings Iowa, visit CollegeSavingsIowa.com or call (888) 672-9116. For additional details about the Plan, read the Program Description - Get the complete picture.
Make sure you plan for an entire college career instead of just the first year. Remember that in addition to rising costs, your student may have scholarships that are applicable only for freshman year or may not qualify for ensuing years of a renewable scholarship. Job opportunities and pay vary by campus, and academic demands can affect your student’s ability to work during the school year. The College Funding Forecaster provides an easy-to-use four-year estimate. - Consider changes.
Depending on when you started saving for college, your college investment strategy should change with your student’s age and education goals. Now is a good time to consider your current options and possible changes. It may also be time to convert funds from one vehicle to another. - Have an honest conversation.
Every year, students apply to colleges or even attend for a semester or two without realizing they simply cannot afford their choices. Before your student becomes too invested in the college search, be sure they understand what you will be able to contribute to their college expenses and the financial load you expect them to carry.
Registration is still open through March 29 for a scholarship for Iowa high school students, not just seniors. The scholarship awards $1,000 College Savings Iowa deposits, which can be used when your student is ready to pay educational expenses. Register at www.IowaStudentLoan.org/ScholarshipSignUp.
Next Steps
Be sure to complete the survey questions at the end of this article to be entered into the 529 deposit giveaway!
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