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California families leaving thousands of college savings dollars on the table
Sacramento, Calif. – More than half of California families are making at least one critical mistake that is reducing their college savings by thousands of dollars, according to new research released today by ScholarShare 529, California’s official college savings plan. The research examines four common and avoidable missteps that significantly reduce the likelihood that college savers will achieve their savings goals. The four mistakes are:
- Paying federal or state taxes on college savings income
- Dramatically reducing their financial aid award because they saved in the wrong vehicles
- Eroding the purchasing power of their college savings because they are using savings accounts and other vehicles that can’t keep pace with the rising cost of an education
- Letting high investment fees and expenses eat into their college savings
“Our analysis of these college savings mistakes reveals that California families are unnecessarily leaving thousands of college savings dollars on the table,” said California State Treasurer Fiona Ma. “These findings are designed to empower families to save for college in smart ways that provide the best chance to attend and afford college. We encourage all college savers to reevaluate their savings strategies, and adjust their approach as needed to avoid making these critical financial mistakes.”
The need to save for college in a smart way is pronounced today in California – and nationwide. Americans now owe more than $1.5 trillion in student loan debt – more than twice what they owed a decade ago. In addition, global financial services firm Morningstar analyzed 529 plans nationwide and found that American families are paying an estimated $237 billion in avoidable taxes by not investing their college savings in 529 plans.
In California, nine out of 10 parents say that sending their kids to college is one of the most important things they can do as parents, according to the 2019 ScholarShare 529 Emotions Study.* Yet these parents are struggling to meet their goals and anticipate needing to sacrifice to help their kids attend college. According to the research. more than seven out of 10 California parents (73 percent) say they aren’t saving enough, and more than half anticipate they may need to take on a second job, delay their retirement, and/or go into debt to help their kids attend college.
Many parents may think they are playing it safe by keeping their college money in a savings account, but in reality, they may be setting themselves up for failure. In 18 years, a dollar invested in a bank savings account may be worth only $1.02. That same dollar could be worth more than $3.00 if it was invested in a 529 college savings plan, thanks to the tax-free compounded growth potential a 529 plan offers (assuming 0.1% APR on the savings account and 7% return on the 529 plan). This is especially important considering how quickly college costs are increasing.
For more information about these four critical college savings mistakes and how college savers can avoid them, download the whitepaper, Four Mistakes California Parents Should Avoid When Saving For College, detailed findings and analysis. Visit www.CollegeSavingsMistakes.com for additional findings, resources and content.
*Among over 1,000 CA families planning to help their child pay for college.
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About ScholarShare 529
ScholarShare 529 serves as California’s official college savings plan. Administered by the ScholarShare Investment Board, ScholarShare 529 provides families with a valuable tool that offers a diverse set of investment options, tax-deferred growth, and withdrawals free from state and federal taxes when used for qualified higher education expenses, such as tuition and fees, books, certain room and board costs, computer equipment, and other required supplies. ScholarShare 529 manages over $9.3 billion in plan assets across more than 325,000 ScholarShare 529 accounts as of 8/31/19.
To open a ScholarShare 529 account or get more information about the plan, visit www.ScholarShare529.com. For information about the ScholarShare Investment Board, visit www.treasurer.ca.gov/scholarshare, like ScholarShare 529 on Facebook at www.facebook.com/scholarshare529, and follow them on Twitter at @ScholarShare529.