Give the Gift of Education
William Penn said, “Time is what we want most…but what we use worst.” As another summer has come and gone and children are back to school, it is a good time for families to consider their strategy for paying for future college costs. The good news is that there are options that can help families prepare for, and pay for, college while minimizing the financial burden.
Establish a Savings Plan
With a 529 college savings plan like CHET — the Connecticut Higher Education Trust — families can tailor an investment strategy to fit their individual needs. The tax benefits are quite compelling: account earnings grow tax-free, and Connecticut taxpayers can annually deduct up to $5,000 if filing single or $10,000 for joint filers. Plus, withdrawals from a CHET account will be tax-free if used for qualified educational expenses.
The most impactful step that parents can take is to start saving early. To help encourage an early start, the State of Connecticut offers a unique program for children born or adopted in the state — CHET Baby Scholars (www.aboutchet.com/babyscholars). CHET Baby Scholars will deposit $100 into a CHET account within the first year of a child’s birth or adoption, and will make a second deposit of $150 if family or friends add at least $150 to the child’s CHET account within four years.
Add to that a modest investment of $25 per week — made easier by automatic payroll deduction — and the CHET account has the opportunity to grow meaningfully over an 18-year time horizon. For example, assume a family opens an account for a newborn and takes advantage of the full $250 contribution from the CHET Baby Scholars program, and contributes $25 a week through automatic investing. The account could potentially be worth approximately $86,903 in 18 years, assuming a five percent rate of return.
Parents sometimes believe they need to have 100 percent of the cost of college saved by the time a child starts college. In reality, most people save a portion, and rely on other sources to help close the gap between savings and the actual cost. For example, there are many large and small scholarships that families and students can pursue. As a child reaches junior or senior year of high school, he or she should look to various local, regional or national organizations to apply for scholarships. Several types of scholarships are available, including merit-based, need-based, or scholarships specific to certain career paths. In addition, local organizations frequently award scholarships for volunteer work within the community.
A generous program to definitely check out is the CHET Advance Scholarship, which provides up to $2,500 to 100 high school seniors and 100 high school freshmen each fall. Since 2013, the Treasury has awarded $2 million in scholarships to 800 students. The deadline for this year is October 3, 2017. To learn more and apply, go to www.chetadvance.com.
Parents can enlist the help of family and friends as “partners in saving.” Birthdays, holidays and special occasions are perfect opportunities to donate to a CHET account. Family and friends have the option to purchase CHET gift cards online or in any Toys“R”Us or Babies“R”Us in Connecticut. Parents can also encourage children to invest in their own future by starting a savings account and adding to it over the years when they can (i.e. birthday money, allowance, extra money from part-time jobs).
A final consideration for paying for college is loans. Whether borrowed by the student, parent or a combination of both, families may consider taking out the minimum amount necessary to bridge the gap.
For more information on how to develop a savings strategy, visit CHET online at www.aboutchet.com. There, you will find helpful tips on how to reap the tax advantages of your college savings plan, a college savings planning calculator and a comparison of various savings options. You can also schedule an appointment with a college savings specialist, or you may call 800-417-1207.
Taken together, these elements of a savings strategy can help make the dream of college a reality.
Denise L. Nappier is Treasurer of the State of Connecticut and Trustee of the Connecticut Higher Education Trust.