The cost of earning a college degree remains an ever-present financial challenge for many families. In 2024, the average college tuition and fees climbed by around 5.5% at private schools and about 2 to 2.5% at public schools. Accordingly, it’s understandable that 93% of parents are concerned about inflation and increasing college costs.
The good news? The end of the year marks a time when families can make smart moves to bolster college savings. Saddock Advisory can help you plan for your loved ones’ futures. In the meantime, consider these strategies to help you fund your students’ education dreams while positively impacting your taxes.
Take Advantage of Tax-Deferred Savings Opportunities
529 Plan Contributions
Parents are saving at record levels for their children’s higher education. According to the College Savings Foundation’s State of Higher Ed Savings Survey, over half of parents reported using a 529 plan for the first time. These plans offer tax-advantaged savings for education-related expenses, such as tuition and books.
To that end, 529 Plans offer ample opportunity to minimize taxes while contributing to your children’s college fund. Over 30 states – including the District of Columbia – offer a state income tax deduction or credit for 529 contributions. As such, the end of the year represents a great time to take advantage of this tax benefit.
Remember that these deductions fluctuate widely from state to state, so research is paramount. For example, while 30 states offer tax deductions, in many cases, taxpayers must contribute to their home state’s plan to qualify for the state income tax benefit. (Nine states, however, allow a state income tax benefit for any 529 plan, not just their in-state plan).
Annual Gift Tax Exclusions
Did you know parents and grandparents can give up to $ 18,000 in 2024 per person without triggering a gift tax? The gift tax allowance applies to each recipient on an annual basis. You can give up to $18,000 per person each year without filing a gift tax return.
As a bonus, married couples can each contribute up to the gift tax exclusion amount without triggering the filing requirements. For instance, a grandfather and grandmother can each contribute $18,000 to their grandchild’s 529 plan. Together, they can gift a total of $36,000 without the need to file a gift tax return, as neither exceeds the individual exclusion limit.
Top College Savings Strategies to Implement Now
When saving for your children’s education, a good rule of thumb is to start early and ensure that your college savings outpace inflation rates. In terms of outpacing inflation rates-early planning and consistent contributions help fulfill this goal. However, it’s important to remain mentally flexible and remember that every little bit helps.
Moreover, whether starting early or late, there are strategies you can implement that will serve the dual purpose of reducing your tax burden while helping you save for college expenses.
Maximize 529 Plan Contributions (or launch a 529 Plan for the first time)
If you still need to establish a 529 plan for college education, now is the time to start. As mentioned, 529 plans allow individuals to save money for qualified education expenses with tax-deferred growth and tax-free withdrawals when the college years arrive. Setting up a 529 plan and maximizing your contributions is a great way to minimize your taxes this year while building your college fund.
Leverage Employer-Sponsored Savings Programs
Does your employer offer 529 plan matching or other education savings benefits? This is a good time to investigate and to take advantage! Talk to your employer or HR department about potential college-saving incentives – if you haven’t already – and make the most out of these opportunities, which typically reset annually.
Explore Other College Savings Tools
There are other options for saving for college besides 529 Plans. It certainly doesn’t hurt to explore all opportunities to maximize the growth of your college investments.
For example, Coverdell Education Savings Accounts (ESAs) and Roth IRAs can be used for tax-free withdrawals for qualified education expenses. Parents can also tap into more traditional investment accounts instead of a 529 plan. This route may offer more financial flexibility but limited tax benefits. Additionally, it’s vital to keep this account separate so you’re not tempted to use it for everyday expenses.
Start a Partnership with a Qualified Financial Advisor Before Year’s End
Researching and examining how to save for your children’s college education can feel overwhelming. The most intelligent move you can make before the end of 2024 is to schedule a consultation with a college-saving expert like our team at Saddock Advisory.
At Saddock Advisory, we offer exceptional financial planning for families in various life stages. Our expertise includes year-end financial planning that minimizes tax obligations and maximizes education savings.
Contact us today to create a personalized financial plan that secures your family’s future and amplifies prospective financial opportunities.
