Money saved consistently over time plus interest grows faster than most people realize.
In this section we have a tool to show you how much can be saved at different interest
rates and over varying time frames. We also have information about two plans many
families use to prepare for the costs of college.
Our recommendation is that a student opens a savings account specifically for college
as soon as possible and be dedicated to putting at least something into it on a
regular (weekly or monthly) basis. This is a great place to put half of your birthday
money, babysitting money or tips you receive - and it is not a bad place for parents
to contribute to as well. This account needs to be one you cannot 'touch' until
college.
529 savings plans and Coverdell Education Savings Accounts are common among families
saving for education and are outlined here.
529 Savings Plan
529 Savings Plans allow students and their families to contribute to a college fund
that has certain tax benefits when used to pay for education.
In Indiana the CollegeChoice 529 Investment Plan offers these benefits:
- Low minimums
Open an account for as little as $25 and make additional contributions of $25
- High maximums
Contribute up to a total of $298,770 per beneficiary for accounts in all 529 plans
sponsored by the State of Indiana.
- Range of investment options
Choose from a variety of investment styles, including a simplified Age-Based Option.
- Tax-deferred growth
Your account earnings grow tax deferred from both federal and state taxes
- Federal and state tax-free withdrawals
Qualified withdrawals from your CollegeChoice 529 account are free from federal
and Indiana state taxes.
- Special tax credit for Indiana residents
Indiana taxpayers are eligible for a state income tax credit of 20% of contributions
to their CollegeChoice 529 account, up to $1,000 credit per year.
- Gift-tax benefits
Contributions qualify for the federal $13,000 annual gift exclusion.
Coverdell Education Savings Accounts
Investing money in a Coverdell Education Savings Account is another tool in your
belt when it comes to saving for college. The Coverdell Education Savings Account
(formerly known as an education IRA) also has several tax benefits and is worth
a closer look as you put together a financial plan to fund your education.
Traditional Saving Methods
A simple and easy way to save for college is by opening a regular savings account.
One convenient way to save is to have a portion of your paycheck directly deposited
into your savings account. Ask your friends and relatives to make a deposit in your
savings account for a birthday or holiday present. The interest you earn may be
taxed, but forming the habit of saving and having the account on hand to pay for
school is well worth it.
Savings Bonds and CDs are also easy ways to save for college.
Always remember if you have a question about anything on this site, feel free to
drop us a note at outreach@ismloans.org
and we’ll be happy to answer or elaborate on an item that is confusing or unclear.