Smart Savings: Preparing for College

Smart Savings: Preparing for College

September is National College Savings Month—a timely reminder for families to start or revisit their plans for higher education. With tuition costs rising steadily and the overall cost of living higher than ever, saving for college can feel overwhelming. The good news is that taking small, consistent steps now can make a significant difference later. Whether your child is just starting kindergarten or already in high school, it’s never too early—or too late—to prepare.

Start Early, Save Consistently

The earlier you begin saving, the more time your money has to grow. Even modest contributions can accumulate into significant savings over time, thanks to the power of compound interest. Setting up automatic transfers into a dedicated account—whether it’s $25, $50, or more per month—helps make saving a habit. Think of it like planting seeds: the earlier you plant, the stronger the tree will grow.

529 Plans: A Smart Choice

One of the most popular tools for college savings is the 529 plan, a tax-advantaged savings account designed specifically for education expenses. Here’s why families turn to them:

• Tax Benefits: Earnings grow tax-free, and withdrawals for qualified education expenses are not taxed.
   
• Flexibility: Funds can cover tuition, books, fees, housing, and even some K-12 tuition expenses.
   
• Control: The account owner stays in charge, even after the beneficiary turns 18.

Tips for making the most of a 529:

• Start contributions early, even if small.
   
• Take advantage of automatic deposits.
   
• Ask family members to consider contributing as a gift for birthdays or holidays.

State-Specific Benefits

Here in Michigan, families can take advantage of the Michigan Education Savings Program (MESP), the state’s official 529 plan. Contributions to MESP may qualify for a Michigan state income tax deduction of up to $5,000 per year for individuals or $10,000 for married couples filing jointly, making it an especially smart choice for local savers. Earnings grow tax-free, and withdrawals for qualified education expenses avoid federal and state taxes. Be sure to consult your tax advisor though.

For guidance on how a 529 plan can fit into your overall savings strategy, visit Eaton Community Bank’s Investment Products page to learn more and contact a Team Member for more information.

Other Tools and Strategies

While 529 plans are a top choice, families have other tools to consider:

• Coverdell Education Savings Accounts (ESA): Similar to 529s but with lower contribution limits.
   
• Custodial Accounts (UGMA/UTMA): Assets are held in the child’s name but can affect financial aid eligibility.
   
• Scholarships & Grants: Encourage your child to start exploring scholarship opportunities early. Many awards are available long before senior year of high school.
   
• Employer Benefits: Some workplaces now offer 529 contributions or student loan repayment assistance as part of their benefits package—worth checking during open enrollment.

Making Saving Manageable

With higher prices at the grocery store, gas pump, and everywhere in between, it can feel hard to add one more financial priority. But saving for college doesn’t have to be overwhelming. Here are a few practical steps:

• Round Up Your Savings: Apps and bank programs that round up debit card purchases to the nearest dollar and save the difference can quietly build college funds.
   
• Redirect Small Windfalls: Use tax refunds, bonuses, or even the money saved from cutting unused subscriptions to boost contributions.
   
• Involve Your Student: Even part-time jobs or summer earnings can go directly into a 529 or savings account. This builds both responsibility and savings.

Resources for Families

National College Savings Month is also a good time to explore the many free resources available:

• Your State 529 Plan Website – For tax benefit details and contribution rules.
   
• College Savings Calculator – Tools like those on SavingForCollege.com can help you project future costs and savings needs.
   
• High School Counselors & College Planning Offices – Often overlooked, they can connect families with scholarships and planning workshops.