Being a parent can be really expensive. According to the latest research by The Brookings Institution, raising a child until they turn 17 costs over $300,000. And that’s without counting the hefty fees for college afterward. Setting up a college fund is a solid strategy to help your kids grow into successful adults. Need some tips on how to get started with a college fund?
REALITY OF COLLEGE COSTS
Each year, U.S. News conducts a survey that revealed average tuition fees for the 2022-2023 school year ranged from $39,723 for private colleges to $10,423 for public in-state colleges. If this trend continues, college fees are likely to keep going up. College costs are growing faster than the inflation rate, and experts believe this pattern will continue. With a steady increase of around 6% per year, here’s a look at what college might cost by the time your kid or grandkid is ready to go.
If you’re thinking about how to save for college, here are some useful tips:
SAVING STRATEGIES FOR COLLEGE
Planning and dedication are key to building a robust college fund for your kids. Check out these practical suggestions:
START SAVING EARLY
The earlier you begin saving, the more your money can grow. Opening a college fund at birth is perfect because small, regular investments over many years can add up to a substantial amount, reducing the need for big monthly or yearly contributions.
UNDERSTAND THE COSTS
College expenses include a lot of items, some of which might surprise you. Knowing these costs helps you compare different institutions and find ways to lower expenses, providing you with a target savings amount.
CHOOSE THE RIGHT SAVINGS PLATFORM
If you want to start saving early, certain savings platforms can help. Look into tax-benefited accounts like 529 plans or Coverdell Education Savings Accounts (ESA).
AUTOMATE YOUR SAVINGS
Set up automatic deposits into your college savings account to ensure constant growth. Regular monthly inputs, combined with interest, can significantly boost your savings. This method maximizes growth, ensures regular contributions, and prevents you from spending the money elsewhere.
ENCOURAGE FAMILY CONTRIBUTIONS
Share your college savings goals with close relatives who may want to contribute during special occasions. Including a link to your child’s 529 savings account on birthday invitations can offer a way for loved ones to help.
INVEST WISELY
Diversify your investments according to your risk tolerance and timeline. Many college savings plans offer various investment options. Regularly review and adjust your investment plan as needed.
LOOK INTO SCHOLARSHIPS AND FINANCIAL AID
Stay updated on available scholarships and financial aid. While not a substitute for savings, these can help cover some costs.
WHERE TO PUT YOUR MONEY
529 SAVINGS PLANS
A 529 savings plan, a state-backed investment account specifically for education, should be a top choice. It offers tax-free withdrawals for eligible educational expenses, including college and K-12 tuition.
Traditional and ROTH IRAs
Consider investing in Traditional and ROTH IRAs. These accounts offer tax benefits and can hold different investments like stocks, bonds, and mutual funds.
CUSTODIAL ACCOUNTS
UGMA and UTMA custodial accounts hold money or assets for minors. When they reach adulthood (18-21, depending on the state), they gain full control and can use the money as they wish, not necessarily for education.
THE BOTTOM LINE
Although college costs are rising, early saving can lead to higher returns. Once parents determine how much of their child’s education they can afford, they can create a plan for regular contributions. Options like 529 savings plans, brokerage accounts, and prepaid tuition plans are all viable, with 529 plans offering significant tax advantages and flexibility.
Remember, each family’s financial situation is different, so tailor your savings plan accordingly. Regularly review and adjust your strategy based on your family’s needs and financial circumstances.