Planning for college takes a lot of work. That’s why so many parents start saving as soon as their child is born. But how should you save your money? You have a lot of options. Let’s check out some of the ways you can save.
The earlier you start saving for your child’s college education, the better. Depending on how you save, you’ll deal with certain risks and you can handle them easier if you start saving early. Modest savings can still really help you out if you start them early; everything builds on itself.
Keep in mind, your retirement savings should trump college savings, especially early in the child’s life. Don’t forfeit your retirement just to start saving for your baby’s college fund. Your children can find many ways to get money for school; you don’t have nearly as many handouts for your retirement fund.
529 College Savings Account
Turns out, most people haven’t heard of the 529 plan, but most financial advisers would tell you that it’s the best way to save for your child’s college tuition. These state-sponsored accounts allow parents to use their after-tax money as an investment, growing and remaining tax free as long as the money ends up going toward tuition. Some limits exist on how much money you can contribute, but not many. If you choose this route, make sure to research and find a good plan.
If you have a young child, you can invest somewhat aggressively, only getting conservative as your child gets closer to college age. Some plan administrators can set up a situation where your funds automatically shift into the account for you. Lots of employers also offer options like this to their employees.
Child’s Own Saving’s Account
You can make a bank account under your child’s name that’s set aside specifically for college and teach them how to handle it on their own. Of course, especially when they’re young, you should have control over the account. But letting your children understand how finances work can really help them out when they get older and have to use that money to pay for college. They can also help make smart decisions about their own future when you let them learn about the process.
You don’t have to use this method for the entire college fund, but it works excellent as a way to supplement another, more aggressive method.
Employer’s College Savings Plan
Many companies offer you to direct deposit into a college savings account, much like the 529 plan, making automating savings easier. Especially if you put the same amount every pay period in, this idea might work out well for you. Some companies may not offer this as an option because they don’t want to hold responsibility for the 529 or other plan that they choose, especially with so many options available.
If you’re interested, ask your employer’s human resources department about it. This method often gets you tax deductions for your savings. Some companies also offer small, private scholarships for children of employees — not a ton, but enough to cover a couple of years of books or so.
Invest in Mutual Funds
Mutual funds can help when you have a lot of different accounts going on in your life, and you don’t want to divide your energy between all of them. When you invest in a mutual fund, you put your finances in the hands of a professional, meaning you don’t have to watch over the markets.
Save During College
You can save on tuition in multiple ways during college, on top of your savings, grants, loans and/or tuitions. One way you can save is on tax breaks. The American Opportunity Tax Credit and the Lifetime Learning Credit can help save you money during years that you pay tuition. Unfortunately, though, you can’t claim these credits during the same fiscal year that you claim tuition and fees deductions. Although, depending on how much you make, the credits might offer a better deal. You can also choose to educate yourself online, saving loads of money on tuition.
Do research on some of these different methods and see what might work out best for you and your family. Make sure your family stays educated on your finances and understands the options before them.