Need a College Savings Boost? Use Your Tax Refund

By Teresa Stewart - February 27, 2018

Expecting a tax refund this year? Consider investing it in your child's or grandchild's future by putting it towards their college dreams. Lump-sum contributions, as well as regular investments, can help keep or put their plans on track.

Turn Your Refund into a Dream Starter

Every dollar you can save now could improve your child's chances of making college more affordable down the road. According to Sallie Mae , the average family paid $23,757 for college last year. College costs  have been steadily rising for decades, and there is no sign of them slowing down.

Many parents expect to contribute to the costs of their child's education because it's such an important goal, and they don't want their children saddled with massive amounts of student loan debt before they even start their first “real” job. Even though the goal is there, some may not know where to start.

Prepare for College Costs

There are many ways to save for higher education. A 529 education savings  plan, in particular, is a helpful way to prepare. Some of the benefits include:

  • It's easy to start. Many 529 accounts can be opened with a small amount (or a lump-sum like your refund) and can be set up to have recurring contributions added monthly from your bank account.
  • Plan flexibility. You can use the money to pay for qualified education expenses (including room and board) at any two- or four-year accredited university, college, or for technical or vocational school, and for graduate degrees.
  • Others can help. Anyone can contribute to the 529 account—parents, grandparents, friends and family. 529s are also available to save for your own education.
  • Tax advantages. Investments grow tax-deferred, and earnings on qualified withdrawals are federal income tax-free, protecting investors' wealth. State tax benefits vary.

Save Smart with Your Refund

Other investment vehicles are also available for college savings. Regardless of which option you choose, using your refund is a smart idea.

If you are already saving, the tax refund can accelerate your college plan. If you haven't started, use your refund to kick-start a plan. Either way, a one-time investment can spell good news for your future college student.

Teresa Stewart
Teresa Stewart

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      The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

      IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

      This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

      As with any investment, withdrawal value may be more or less than your original investment.

      The availability of tax or other state benefits (such as financial aid, scholarship funds and protection from creditors) may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.