Saving for a college education can be expensive. Here’s information you should know about starting a college savings plan.
As college tuition continue to increase, preparing for your child’s educational future is important. It may seem a little daunting at first, but with a few tips, you’ll be on your way to help them start life debt free.
The first thing to know is there are a ton of different investment accounts you can choose from. Understanding the rules and tax consequences of each can help you better decide what will work best for you and your family.
A great way to specifically save for your child’s education are 529 plans. There are different types of 529 plans that can work best for your family. Some that you may want to stray away from are ones that freeze your options or change your investments based on your child’s age.
There is no income limit or how much you can contribute to the account. The account also grows tax free.
Education Savings Account (ESA)
ESA accounts let you save $2000, after tax, per year. If you start the year they’re born, you’ll invest $36,000 plus whatever the account grows, tax-free. That means, when you go to take the money out of the account, none of it will be taxed.
The downfalls to this account is you’re limited to what you save, your child has to use it by the time they’re 30, and you have to be within a certain income limit.
Uniform Transform/Gift to Minors Act (UTMA/UGMA) Accounts
UTMA and UGMA accounts are different from 529 plans and ESAs because your child doesn’t have to specifically use them for education. The accounts are controlled by a parent or grandparent until the child reaches the age of 21. At this time, they can decide if they’re going to pay for their tuition or purchase something of their choosing.
These accounts are a great option because not all kids decide to go to college. If your child doesn’t make that decision, they’re able to put that money towards something that will benefit their life.
The average cost of tuition is $37,172. With that large amount, people have to start saving early. As soon as you can start saving for college, the more time and money you’ll have.
Obviously, if you’re on a debt free journey, you won’t be able to save as much as you’d want. Yet, even little amounts in a college savings account will help. When you get your debt paid down, you will be able to start saving more for college tuition.
As your child gets older, they can help start saving and working hard to help cover their future tuition too.
We know high schoolers are busy so not all of them can maintain a high GPA, extra curricular activities, and a job. There are still ways for them to contribute though. They can apply for scholarships, take AP and/or CCP classes, or enroll in post-secondary classes. This way they can get money for college and take free (FREE!) colleges classes while they’re already in high school.
Another thing to keep in mind is to save money instead of spending it. For birthday, allowances, or any extra money your child gets, put it into college savings.
Every little bit adds up!