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10 Dollar Increase Can Do So Much For Your College Savings

529 Tips

Annual Increases: Small Changes Can Make a Big Impact

What can you buy with $10? A movie ticket? A couple cups of premium coffee? A new phone case? How about a much larger college savings plan? Ohio’s 529 Plan, CollegeAdvantage, has a way to dramatically increase the size of your higher education savings. It’s called the “annual increase option” and it is part of the Automated Investment Plan (AIP).

How it works

The annual increase option within CollegeAdvantage allows you as the account owner to raise the contribution amount from a paycheck or a bank account on a yearly basis. This means that if you want to increase your monthly contribution by $5 or more, you can do that. You will need to decide what month you want to increase your monthly contribution to your account. If at any point you’d like to decrease the amount of the monthly contribution, all you have to do is log in to your account and change the settings within the Manage recurring contribution link. Ohio’s 529 Plan allows you to create a savings strategy that works for your budget.  Please keep in mind the change must occur at least three business days prior to your scheduled contribution.

Save S.M.A.R.T.

Have you been overwhelmed in the past by trying to come up with a college savings strategy that will meet your needs? Your annual increase option can be used to create S.M.A.R.T goals. S.M.A.R.T. stands for Specific, Measurable, Achievable, Relevant, and Timely. This strategy creates goals that are more achievable by breaking down the changes you want to make into smaller manageable steps.

Start to save early

When saving in a 529, you can start with a small amount while your children are young. After all, you are paying for disappearing expenses while your discretionary income is small. Disappearing expenses are a temporary cost in your family’s budget, like diapers, formula, or preschool, that eventually go away. As your children grow out of the need for these items, money is freed up to put toward other expenses, like college savings.

And why start saving while your children are young? First, you will start the habit of saving for your children’s future higher education expenses. Secondly, you will have the superpower of compound interest to really grow your college savings account. Compound interest is accrued not just on the original contribution but every contribution. It is also amassed on the earnings from the 529 investment options and the already accumulated interest.

You have options

You might be impressed by how much you can set aside for a higher education by choosing to save in Ohio’s 529. You might be surprised by how much more you can save when you choose take advantage of an annual increase. Let’s take a look at some of the common saving practices and the advantages of choosing to invest in a college savings account from CollegeAdvantage.

In the following scenarios, we’ve selected three savings amounts that are measurable and achievable for the majority of savers. Since $25 is the minimum contribution needed to make a deposit, we started there and added two other dollar amounts that many families use to add to their 529 plans. All numbers in the text are calculated based upon an 18-year investment strategy. In the chart, you will find the amounts for other savings timelines.
03.02.20 Ten Dollar Increase Graphic

The mattress 

While we’re pretty sure no one does this anymore, there are savings strategies that earn no interest at all. Saving in most traditional bank accounts, especially if it’s a checking account, won’t get you any farther than saving it under your mattress. If you were to save $25 dollars a month, over 18 years, you would amass $5,400. If you increased this amount to $50 or $100 a month, this would net you $10,800 or $21,000 at the end of 18 years. Now, this isn’t an insignificant sum of money by any means; however, you can definitely do better. Since the option for an annual increase probably isn’t available for a basic bank account, we won’t discuss it here, but look at the chart to see how much you would be able to save.

Interest bearing bank accounts

Your local bank or credit union are familiar places. As your neighborhood financial institutions, they can often be responsive to their customer base and take an active interest in helping out their community. You probably have a checking and savings account at one of these institutions. You’ve been to the branch to make deposits and take out money. The problem with bank accounts is that they offer low interest rates, even for “high performance” accounts. If you go to your local banks’ website and look up interest rates for savings accounts, you will find interest rates that range from .02-2.0% depending on the amount of money in the account. If you are just starting your college-savings journey, you may only have a small amount of money ready to invest and will not be able to earn the higher interest rates. Also, some accounts require deposits of $250-$500 just to open an account and larger balances to receive the highest interest rates. With that being said, let’s look at how your money will grow in a traditional savings account. If you choose to start saving in a bank account with $25 a month deposit and you earned, on average 1%, you will have about $5,918 after 18 years. If you increase your savings to $50 and $100, you can see returns of $11,837 and $23,675. If you compare these numbers against saving money in a shoebox or in a no interest account numbers, there is only a small difference in final numbers. And, don’t forget, those earnings could be taxed. You might be saying to yourself, “There has to be better way!” And there is — it’s a 529 plan.

A better way to save

Ohio’s 529 Plan can be opened for as little as $25 and there’s no penalty or fee for having a low balance. The money you save in your 529 plan is invested and will start to earn interest. To see how much bigger your college savings can grow with CollegeAdvantage, let’s look at the basic numbers first. When you start saving at $25, $50, and $100 a month (assuming a 5% rate of return over 18 years) you can see your investment rise to $8,766, $17,533, and $35,066 respectively. In the $25 category, that’s a difference of more than $3,300 for the mattress scenario and $2,800 in a low interest account. When you start looking at the two other savings levels, the advantages become even greater. The differences in the $50 level are $6,733 and $5,695. At the $100 level, the differences are $13,466 and $11,391 respectively. But what if there was an even better way to save?

Even better way to save

As the old advertising slogan goes, “But wait, there’s more!” When you utilize CollegeAdvantage’s “annual increase” option, your college savings can grow much, much larger. Let’s say you start saving $25 a month.  After the first year, you opt to bump to up your contributions by $10 a month through annual increase. If you repeat this step yearly, then your account can grow to $33,784 after 18 years. That’s an increase of over $25,000 compared to just contributing the same $25 amount each month for 18 years. If you were to double your initial starting amount to $50 and raise the amount of the monthly contribution by $10 yearly, you could reach almost $43,000. By starting at $100, you could get to almost $60,000 with the $10 per month annual increase option each year. This is a far cry from the $21,000 you would save by contributing $100 monthly for 18 years under your mattress.

Also, unlike a traditional bank accounts, all of money you save in a 529 plan will grow tax-free and you will be able to spend it tax-free, as long as it is spent on qualified higher education expenses.

Tools for success

Ohio’s 529 Plan has created a set of calculators and tools to see the advantages of setting goals and saving for college. You can calculate your estimated college costs based on your child's age, your initial deposit, your monthly or yearly contributions, and a few other factors. The Cost of Waiting Tool can show how starting early with your higher education savings can really build up, even if it’s a small contribution to start. The Tax Benefit Tool illustrates how the tax-free earnings in a 529 plan allows you to keep every dollar that grows in the account, unlike a taxable bank savings account. Lastly, when you’re ready to open an Ohio’s 529 Plan account, take the Risk Tolerance Questionnaire to determine which investment style — conservative, moderate, or aggressive — you would be most comfortable following. They’ll all help you build a savings plan that's right for you.

Don’t just set it and forget it

Using CollegeAdvantage’s annual increase option is a great way to create the backbone of your college savings and there are more options to grow your account even larger. One of the options is to create a Ugift code. Ugift is a free service through our recordkeeping service, Ascensus. This code allows loved ones to donate to the 529 plan for birthdays, holidays, and all those “just because” reasons that pop up throughout the year. The Ugift advantage is that you aren’t giving out the 529 account number so that critical information is kept secure.

You can also shop with Upromise, a free loyalty program that offers its members cash back for their purchases from a wide variety of businesses. When you connect your debit and/or credit card to your Upromise account, you can start earning rewards with your everyday shopping. Then link your Upromise account to your CollegeAdvantage Direct 529 Plan account to roll over these rebates.

Lastly, rethink what you do with your yearly tax return. It’s a great opportunity to grow your college savings. If you invest the 2018 average federal tax return into a 529 plan for 13 years, you could have enough money to pay for 75% of a four-year chemistry degree or 100% of a master’s degree in engineering.   

Ohio’s tax-free 529 college savings plan is a simple way to save for any higher education goal and it’s accepted nationwide. Someday your child is going to college. Someday starts at

Posted on February 26, 2020

Ohio Tuition Trust Authority

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