5 College Savings Tips for Adults Returning to School

Don't wait until you're enrolled in college to start saving for your degree.

Don’t wait until you’re enrolled in college to start saving for your degree.

For 10 years, Karen Austin, deputy treasurer for Iowa, considered going back to school for her MBA. She didn’t start a 529 plan, a tax-advantaged college savings account, for herself until recently. Austin was saving for her children and wasn’t concerned with saving for her own education yet. 

However, she’s found a benefit to saving for college a semester at a time and then withdrawing the funds as needed: state tax deductions. “I don’t have the benefit of having long-term savings, but I can get the tax benefits now,” she says. She will be able to deduct about $3,000 from her state income taxes this year because of her personal 529 plan. 

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Adults paying for college using 529 plans should follow these savings tips. 

1. Plan early, if possible: Parents shouldn’t wait to start a 529 plan until a child enters college—and the same applies to adults who plan to return to school, Austin notes. For example, if an adult in Iowa contributes $3,000 for the next 10 years, he or she could save $30,000 for schooling, nearly tax free. 

2. Carefully calculate costs: Adults generally don’t have room and board expenses; however, they may have day-care costs. It’s important that older students talk to schools, Austin says, particularly with the counselors handling returning students, about what expenses they should expect. 

The good news for adults is they may have tuition reimbursement programs from their workplaces, says Ernie Almonte, chair of the American Institute of CPAs’ National CPA Financial Literacy Commission. An older student could deposit money into a 529 plan, collect the tax deduction, and then get the money back from the workplace at the end of the semester. It’s important to consider all options for college funding, he notes. 

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3. Review state tax deductions: Since adults returning to school do tend to wait to save until they’re within a year of starting a program, state tax deductions and matching grant programs are the keys to determining whether it makes sense to save in a 529 plan, Austin says. 

American University graduate Erin McRae deposited the maximum Maryland state tax deductible amount in 2012 into her 529 plan. She withdrew the money the same year to pay for tuition. “The tax break helps a lot when you’re trying to pay for grad school,” McRae says. 

However, a Florida-based adult who plans on attending college next year wouldn’t benefit from putting money in a 529 plan if he or she intends to use the money in the same year, because there isn’t a state income tax, Austin notes. If immediate withdrawal is required, it’s best to pay the university directly in this case. 

4. Use money from education tax benefits: Adults who previously went to college may be paying student loan interest. Federal tax refunds can be deposited into a 529 plan for future education, Almonte says—and claiming the student loan interest deduction could add as much as $650 to a tax refund. 

Parents who are able to claim education tax credits from paying for their children’s education can use the maximum $2,500 received per child for their own education, he says. Using the money in this way qualifies the funds for a state tax deduction, too. 

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