Sure, college can be expensive. But don’t worry. If you start saving now, every dollar you put away can grow tax free in the DC College Savings Plan. Plus, saving now will enable you to fund a portion of your child’s college education and will reduce the amount you’ll need to borrow and the financial aid your child will need.
Even small amounts can make a difference
As the following chart shows, contributing $50 every month could mean having a total of $19,465 after 18 years. Saving more can mean greater growth over time. If friends and family contribute to the DC College Savings Plan as well, together your contributions can really add up.
The sooner you start saving, the better
Any earnings on money you contribute to the plan help build your account savings. So the sooner you begin, the longer the benefits of compound interest can work for you. For example, if you began contributing $100 a month right now for a new baby, you could have a total of $38,929 when the baby reaches age 18. Waiting six years could mean having less than half of what you might have if you started when the baby was born.
You'll get tax breaks during all the years you save
The DC College Savings Plan offers substantial tax benefits:
For DC residents and non-residents:
- Earnings grow free of both federal and DC income taxes as long as the money remains in the account.
- Money withdrawn from the account stays free of federal and DC income tax as long as it's used to pay for qualified higher education expenses. You should consult your tax advisor to determine whether earnings would be exempt in another state.
- Money in a DC College Savings Plan account is not generally considered part of the account owner's estate for federal estate tax purposes.
- You may contribute up to $14,000 annually—or make a contribution of up to $70,000 once every five years—free of gift taxes, per beneficiary, up to an account maximum of $260,000.
For DC residents:
- DC residents may deduct up to $4,000 in plan contributions from their federal adjusted gross income on their DC income tax return each year (up to $8,000 for married couples filing jointly if each taxpayer owns an account). If a DC taxpayer exceeds the $4,000 contribution deduction in a calendar year, he or she may carry forward and deduct the excess for up to five years.