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How to Start Saving for Your Child's Education

By: American Heritage12.19.18

If you’re a parent, you want what’s best for your child, like making sure that they get a good education. But how do you pay for day care and start saving for college without going broke?

The good news is that there are options are available that can allow you to save money in the short term and long term, provide tax savings and earn investment income for the future. We can help you prepare for your child's future!


Build Savings with the Right Tools



 Dependent Care Flexible Spending Account (DCFSA) is a benefit account that you can get through your employer that can be used to pay for eligible dependent care services, such as preschool, summer day camp, before or after school programs, and daycare.

The benefits of a DCFSA is that the money you contribute is not subject to payroll taxes. So, you end up paying less in taxes and can take home more of your paycheck.

If you’re able to take advantage of a DCFSA remember the following:

  • Don’t set aside more than you need because the funds in the account at the end of the year will be forfeited.
  • Keep good records, because you must submit reimbursement requests to get the money back.
  • Each spouse can contribute to an DCFSA account, but total family contributions cannot exceed $5,000.
  • In addition, if you’re enrolling because a baby is on the way, you don’t have to wait until open enrollment which usually happens in October through November. For a “life changing event” you have 30 days after the baby’s birth to enroll, though it’s probably a good idea to start saving as soon as you know you’re expecting.



If your employer doesn’t offer a flexible spending account, you can always take advantage of the child care tax credit on your income tax return. This allows you to itemize up to $3,000 in expenses per child per year, with a $6,000 annual cap per family. Once you’ve itemized the expenses, you can take a percentage of that and apply the tax credit.

Keep in mind, if you use an FSA, any FSA money is applied to the tax credit cap first. So, if you use $5,000 from an FSA, you can then itemize only $1,000 for the child care tax credit.


3. PA 529 PLAN

If you want your child to go attend higher education, you can start saving for college today with a PA 529 plan.

The PA 529 Guaranteed Savings Plan is an investment account that lets you save for tomorrow’s college expenses at today’s rates. A 529 plan allows you to invest after-tax money into the plan, and you’re then allowed to withdraw the funds (and any investment gains) tax-free for use toward qualified education expenses, such as college tuition.

While you can apply the investment to any school, this plan is especially advantageous if your child goes to a Pennsylvania state school. If you save enough for a semester at one of the state universities today, you’ll have enough for a semester at that school in the future – no matter when or how much tuition has gone up in the meantime.

Another benefit of a 529 plan is that anyone can contribute. Grandparents, friends, and family can all make direct donations into the plan that will also collect interest over time.

There are even programs like and Gift of College that provide a gift portal you can use to encourage your loved ones to donate directly to your child’s 529 plan.



Want to shop your way to college savings? With a Upromise account, you can earn cash back for college on shopping and dining. You earn money by registering your credit cards, loyalty cards, and grocery cards, and then receive cash back on eligible purchases.

Money earned through the program will be deposited to a 529 college savings account or to existing student loans.



Another option similar to 529 accounts is that a Coverdell Education Savings Account (ESA). Like the 529 plan, these accounts are tax-advantaged as long as the money is used to pay for educational expenses. It’s also considered your asset (not your child’s), so it will have less impact on your child’s chance of qualifying for federal aid and other need-based scholarships.

The difference? Coverdell ESAs can be used to cover any educational expenses, including K-12 costs such as private school tuition.

However, there are some limits: You can only contribute $2,000 per year per child, and eligibility starts to phase out for couples earning more than $190,000 a year.



Many people know about a Roth IRA as an individual retirement account. Essentially, with a Roth IRA, you put in after-tax money, which then grows tax-free. While your contributions are nondeductible, you can withdraw your funds after age 59½ tax-free.

However, while a Roth IRA is intended to be a retirement savings vehicle, it can also be used for college savings. This is because contributions can be withdrawn tax and penalty-free to pay for college, even if they’re withdrawn before you turn 59 ½.



Looking for more ideas?  Come talk with us today! We can help you with loans, savings accounts, financing, and other products and services to save for the future.


More Saving Tips

One of the most defining moments in a teen's life is choosing a vocation. Higher education opens many doors and is often the only choice for careers that require a specialized degree or training. Fortunately, there are plenty of ways to tackle the cost of higher education in addition to student loans!

Remember the actions you can take to help make higher education more affordable:



It's important to practice budgeting before ever setting foot on campus. A monthly budgeting worksheet or smartphone app will make tracking income and expenses a breeze. Budgeting is a valuable skill used for an entire lifetime. With basic addition and subtraction, you can take control of your finances and be your own personal accountant.

Budgeting basics:

  • Track income sources and know the average amount of money brought in each month
  • Track recurring expenses like bills or subscriptions
  • Track other expenses like purchases, grocery spending, and other variables
  • Have an emergency fund and plan for unexpected events
  • Put aside a designated amount of money each month to build savings



Save by buying secondhand! Some textbooks, supplies, and even dorm room essentials can be purchased gently-used for a discount. Mini-fridges, microwaves, and storage furniture are all popular items leftover in high supply at the end of each school year.

Whether living in a dorm or commuting from off campus, students may experience a lot of newfound freedom — and responsibility.

Save more by shopping smart and making these lifestyle changes:



American Heritage annually awards high school seniors a $1,000 scholarship to ease the financial burden of higher education expenses. American Heritage Credit Union’s Scholarship Committee selects the scholarship recipients based on their scholarly merits, community and school involvement, a letter of recommendation, and a submitted essay describing an experience that demonstrates their character or helped to shape it.

Eligibility requirements for graduating high school seniors include:

  • Minimum GPA of 2.5 on transcript
  • Have been formally accepted into an accredited two- or four-year college, university, trade, technical or business school
  • Be a member in good standing of American Heritage
  • Cannot be an employee or family member of an American Heritage employee

The application period is open in late winter to early spring. Students interested in applying can click here to read the full list of submission materials and eligibility requirements. We encourage all eligible students to apply!




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