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Three Smart Ways to Save for College

Blog Post
2 min read
Young Male High School Graduate

 College expenses can weigh heavily on students and families. Tuition, fees, and housing are just a few costs that add up fast. Despite the availability of scholarships and grants, many families are left with a bill higher than expected. However, preparing your finances now could help ensure there’s enough money when the time comes.

Consider these three smart ways to save for higher education expenses.

1. U.S. Savings Bonds

Earn a guaranteed rate of return by lending money to the U.S. government. Series EE and I savings bonds are a low-risk way to put as little as $25 aside at a time. Issued by the Department of Treasury, bonds offer tax benefits when used to pay for qualified higher education expenses. The interest earned on each bond is not taxed by federal or state governments.

2. Coverdell ESA

A tax-advantaged savings option offered right here at SAFE, is the Coverdell Education Savings Account (ESA). While this savings plan lets you earn interest and make withdrawals tax-free, maximum contribution limits top out at $2,000 per beneficiary, per year. While higher-income households might not qualify for this plan, eligible savers can select from a wide range of investment options. This flexibility could result in earnings that are higher than those available with U.S. Savings Bonds. If you're interested in opening an ESA at SAFE, talk to a member of our knowledgeable staff by calling 800-763-8600.

3. 529 Plans

One of the most popular higher education savings accounts is the 529 plan. This is often the go-to option for households that do not qualify for an ESA or want to save more toward future expenses. Under the 529 umbrella, savers can choose a college savings plan or a prepaid plan.

College savings plans let you grow your deposits tax-free. Like U.S. Savings Bonds, low minimum deposit amounts make this plan attractive to many savers. Plus, you have more choice in how it’s spent. For example, the SECURE Act of 2019 and the SECURE Act of 2022, allow for tax-free withdrawals if money is spent on:

  • Registered apprenticeship programs.
  • Student loan debt repayment.
  • Roth IRA contributions. 

Prepaid plans, also known as qualified tuition programs, lock in tuition costs at today’s prices at in-state public institutions. Details vary by state, but you might be able to pay for a two-year community college or four-year undergraduate program through this plan. 

But remember that there are often residency restrictions and limits to how the money can be used. For example, since you are prepaying tuition, your account can not be used to pay for room and board, books, or other higher education expenses. South Carolina residents are encouraged to review the state’s Future Scholar 529 program details.

The sooner you commit to a college savings plan, the more time you give deposits to compound. It’s one of the best ways to ensure you have enough cash to cover higher education expenses. Meet with a SAFE MEMBERS® Financial Services Professional who can help you navigate your savings options today!