Author: Vince Sullivan, Director, NEST 529 Direct Plan, First National Bank of Omaha
It’s no secret that higher education can come with a hefty price tag. This year, U.S. News and World Report calculated that the national average for in-state tuition at a public institution costs around $9,716. For private schools, the estimate jumps to $35,676.
But here’s the good news: NEST 529 is here to help you and your family cover the cost of college. With the right preparation and savings strategy, higher education doesn’t have to be overwhelming or prohibitive.
The key to crossing any finish line is starting out on the right foot. Contributing to your NEST 529 account as early and often as possible will help you get on the track to success. Read on for a breakdown of the many benefits of saving early with NEST 529.
Form Good Savings Habits Early
The prospect of saving for college may feel overwhelming – especially if paired with other financial commitments such as retirement savings and mortgage payments. The sooner you map out a financial plan, the sooner you can get to work on achieving your goals without compromising on other expenses.
The NEST 529 Savings Calculator can help you set a college savings goal, and estimate the monthly contributions needed to meet it. Once you know your savings strategy, set up automatic contributions through Automatic Investment Plan (AIP) or payroll direct deposit so you never have to worry about falling behind. Even better, you can schedule automatic AIP contribution increases to ensure continued momentum in your college savings.
Taking the time to plan your savings early will help you give each element of your budget the attention it deserves, without sacrificing priorities.
Take Advantage of Tax-deferred Growth
One of the greatest advantages of starting your college savings early is the opportunity to maximize your account’s compounded, income tax-deferred growth, also known as “growth on growth”. Because NEST 529 account earnings are state and federal income tax-deferred, the full earnings amount remains in your account and grows with no money being subtracted to pay current tax obligations. Consequently, earnings happen more tax efficiently, helping to increase your account value even faster and maximize earnings potential associated with market growth.
Given the structure of compounded tax-deferred growth, it is in every Account Owner’s best interest to begin contributions as early as possible. This way, your college savings will have the most time to benefit from growth-on-growth.
Leverage Investment Options
NEST 529 offers a diverse and personalized range of investment options to help each Account Owner fit their unique preferences and circumstances. If college is still many years away, your account can shoulder the increased risk of a more aggressive investment portfolio, which also carries the possibility of higher returns. As your child gets older, you can shift your portfolio to prioritize more conservative choices.
If you prefer a hands-on investment approach, you can make these moves yourself through your choice of Static or Individual Investment Options – you have the power to switch investment options twice per year per beneficiary. Or, if you’d rather leave your portfolio to the investment experts, you can take advantage of the NEST 529 Age-Based Investment Options, where your investment risk is automatically adjusted and reduced over time as your child becomes closer to enrollment age. With this method, your account will be placed in a portfolio based on your child’s age, and will automatically move to the next age-range portfolio one month after your child reaches each age milestone.
In the end, no matter which Investment Option or method you choose, the sooner you begin contributions the more time you’ll have to reap possible market rewards. And while college may seem far off, don’t forget: the earlier you start saving, the more opportunity you’ll have to reach your goal with NEST 529.