Her daughter is now 19, but the Idaho single mother still makes automatic deposits. She wants to make sure her daughter has money for graduate school.
Having payments automatically deposited every month guarantees she won't be tempted to use the money for anything else. For her, the deposit into her daughter's college savings plan account is equivalent in priority to a mortgage, rent or utility bill: a static and required expense.
Setting up automatic payments works for Outlaw, but experts also offer the following suggestions for single-income families looking to make the most of their college savings.
[Understand what to do before opening a 529 plan account.]
1. Don't avoid risk: Often one-income families want to avoid risk altogether by stashing money in savings accounts, says David Bendix, a New York-based certified public accountant and personal financial specialist. But earning less than 1 percent interest in a savings account, rather than investing in mutual funds within a 529 plan, means families run the risk of not being able to afford college.
Instead of keeping money in a savings account, he recommends parents consider the amount of time kids have before college and invest appropriately. For instance, a parent should have more money in stock market-based investments for a 6-year-old child than a high schooler.
The alternative for one-income families who want to limit the risk of low growth as well as hedge against a potential drop in value of their 529 plan – such as if the stock market dips – is a prepaid tuition plan, says Lauren Foster, a Chicago-based CPA and personal financial specialist.
Prepaid tuition plans offer families the opportunity to buy tomorrow's tuition at today's prices, and they don't have to buy several years at once. If parents are able to buy one semester's worth of tuition over the course of a few years, they're still helping their children, she says.
[Learn how to find 529 plans that offer high growth.]
2. Don't neglect to estimate potential financial aid: Single parents who are divorced shouldn't worry about whether the other parent's income could affect their children's eligibility for need-based grants and scholarships in college. Federal financial aid is awarded based on the income of the parent who takes care of the child financially and with whom the child physically lives for six months or more of the year.
Whether or not a parent is divorced, all income – including alimony or child support – is considered in financial aid calculations, according to U.S. Department of Education guidelines. Parents who wanted to try to predict their child's financial aid can use the FAFSA4caster or net price calculators on school websites.
[Learn more about net price calculators.]