It’s one of a parent’s proudest moments: Watching a son or daughter step across the stage to receive a college diploma, the end result of years of hard work.Unfortunately, it takes more than dedication to get a college education; it takes thousands—usually tens of thousands—of dollars. Of course, Ally Bank doesn’t offer college savings plans, but we’re focused on helping you make good financial decisions. The truth is, every part of your financial life is connected to the others, so when you talk about funding a college education, there’s a profound impact on your other goals.
How much of an impact? That depends on the school, and the college savings plans you select. The College Board, a non-profit educational organization, found that the average total cost (tuition, fees, room and board) for in-state students attending a public college or university was $24,061 for school-year 2015-2016 For out-of-state students, it was $38,544. The average was $47,831 for students at four-year private schools. College costs also continue to rise at a rate that significantly exceeds inflation, according to the Board’s report, “Trends in College Pricing 2015.” For parents trying to figure out how much they’ll need down the road, there are several ways to estimate the cost, including the College Cost Calculator from the College Savings Plans Network, a non-profit affiliate of the National Association of State Treasurers.
Regardless of what school you have in mind and what the bill will be, it’s generally accepted that the earlier you can start saving, the easier it will be to afford. There are different options available, but two of the most popular college savings plans are a Coverdell Education Savings Account and a state Qualified Tuition Program (known as 529 Plans). Please keep in mind that 529 plans are not FDIC-insured, not bank guaranteed, not a deposit, and may lose value. These tend to come highly recommended if for no other reason than their tax advantages. In both cases, your money grows tax-free. Moreover, withdrawals for education expenses are tax-free.
But there are important differences between the two programs. Robert Reed, a certified financial planner with Partnership Financial, LLC, in Columbus, Ohio, likes to start clients with a Coverdell Account because of its greater flexibility. “You have a much broader spectrum of things you can spend the money on,” he explains. “The one disadvantage is you can only put in two grand a year.” You can contribute significantly more to 529 college savings plans, although many states do impose limits on the amount of benefits that can go to a recipient. You don’t have to be a resident of a state to sign up for its plan, but the plans differ, so you’ll need to do some research before choosing one. Check with a financial advisor familiar with your situation before choosing either of these types of accounts.
If college is approaching and you need to put aside more money, check out Ally Bank’s Online Savings Account, Money Market Account, and full line of CDs. All offer interest rates that are consistently among the most competitive in the country, and all of your deposits come with the security of FDIC insurance up to the maximum allowed by law. Learn more by visiting AllyBank.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.