Adults looking to head back to school have different challenges than those stashing money away for their children when it comes to saving for college.
Adult students saving up for their own education are often saving for their children's education at the same time, and they often have other financial responsibilities, such as a mortgage. Adult savers often have much less time to save for their own college than children do – an adult might not wait 18 years to save up before continuing his or her education.
However, some of the roadblocks that adults saving for college seemingly face can be overcome. Adult savers shouldn't fall for the following common college savings myths.
[Avoid making these FAFSA mistakes.]
1. There’s no point in putting money in a college savings plan because it will be needed soon.
While it is true that there’s not much opportunity for the money saved in a tax-advantaged investment account to grow if the money is only in there for a year, it’s a myth that there’s no point in adults saving for their own education to put money into a 529 plan, as these accounts are known.
"We have a $1,000 tax credit that can be taken right off their income tax," says Jodi Golden, executive director of the Indiana Education Savings Authority. The only requirement is that the money stays in the state's College Choice Direct 529 Plan for 12 months. Savers who want to start school in the fall of 2015 should start saving before the fall semester this year.
Adults should look at their state's time requirements for withdrawing funds before they open a college savings account if they plan to use the money deposited fairly quickly.
[Check out these college savings trends for 2014.]
2. Any short-term growth in a 529 plan won’t cover fees charged by the plan.
This myth is partially true. If the fees associated with an account are more than what’s earned by money in the account or received through state tax benefits, it might not be worth it for adults to save in a 529 plan. Check out what a plan charges to open or maintain a 529 plan account.
It’s hard to earn enough to cover fees when investing in short-term investments such as a savings account, says Jason Washo, an Arizona-based personal financial specialist and certified public accountant. Short-term investments such as savings accounts might not earn enough to even cover a fee of $10 on a $5,000 investment, he says. With more than $5,000, fees can be made up for and investors can think about also choosing extremely short-term bond funds, he says.
[Learn how 529 plans are priced.]
3. Adults don’t have any options for scholarships or free money.
This is untrue. Not only can adults qualify for the same scholarships that traditional students can, but they may qualify for scholarships offered by the university for nontraditional students.
On top of additional scholarships, they may qualify for workplace college funding. Karen Austin, deputy treasurer of Iowa, received some funding from her workplace. It’s not uncommon for businesses to offer tuition reimbursement programs, so adult students should check with their employer about what programs they offer to help pay for education.
4. There is a tax penalty for changing the beneficiary of an account from a brother, sister or child.
While there are tax penalties for taking out money from 529 plans to pay for things that are not considered qualified education expenses, there isn’t a tax penalty for changing the beneficiary, Austin says. Adults who own an account for a college-age student can change the beneficiary to themselves, especially if the student has finished college, she says.
Other family members such as brothers or sisters could also change the beneficiary on an account they used to help their sibling.
Experts recommend adults save as early as possible, even if "early" means one or two years in advance.
"Don't wait until you're enrolled in college to start saving for your degree," says Austin.
Trying to save for college? Get tips and more in the U.S. News College Savings 101 center.