Bringing up children is a costly endeavor. It’s estimated that raising a single child from birth till they reach 17 years old can exceed $300,000, according to the latest research from The Brookings Institution. This sum doesn’t even cover the substantial cost of tertiary education. A college fund for your children is a reliable means to steer them toward a fruitful adulthood. Wondering how to establish a college fund for your child?
THE PRICE OF COLLEGE EDUCATION
Based on a yearly survey by U.S. News, average tuition fees for the school year 2022-2023 ranged between $39,723 (for private institutes) and $10,423 (for state-run, in-state colleges). Unless there are alterations in payment methods for education, this exorbitant cost is likely to continue surging. College fees typically increase at a rate double the inflation rate annually, a trend expected to persist in the predictable future.
GUIDE TO SAVE FOR YOUR CHILD’S COLLEGE FUND
Here are some efficient strategies to save for your child’s future college expenses:
– START EARLY: Initiate the saving process as early as possible, the sooner, the better. Ideally, it’s beneficial to start a college fund when your child is an infant. With the magic of compound interest and regular investments, your saving efforts have more time to bear fruit, reducing the amount required to save monthly or yearly.
– COMPREHEND THE EXPENSES: Understanding the full range of potential college expenses will give you a clear picture of your overall target savings. This will aid you in comparing schools and uncover ways to cut down the costs.
– SELECT THE RIGHT SAVING METHOD: Several saving methods, such as tax-advantaged accounts like 529 plans or Coverdell Education Savings Accounts (ESA), can help you effectively save for your child’s future educational needs.
– AUTOMATE SAVINGS: Reinforce your savings by setting up automatic deposits into your college savings account. This will ensure consistent contributions and minimize any potential diverting of the funds.
– ENCOURAGE CONTRIBUTIONS FROM FAMILY: Inform your extended family members about your savings goal. They may be willing to add to the fund during special events such as birthdays or holidays.
– PRUDENT INVESTMENTS: Consider diversified and regularly reviewed investment strategies based on risk tolerance and time horizon.
– LOOK FOR SCHOLARSHIPS AND FINANCIAL AID: Keep your eyes open for potential scholarships or other financial aid options, these can alleviate the overall cost.
WHERE TO INVEST FUNDS?
– 529 SAVINGS PLANS: This plan allows withdrawals for the expenses of college and K-12 tuition, tax-free on any investment gains. It’s highly recommended due to its tax benefits.
– TRADITIONAL AND ROTH IRAS: An Individual Retirement Account (IRA) provides tax benefits for investments like stocks, bonds, and mutual funds that it houses.
– CUSTODIAL ACCOUNTS: UGMA and UTMA accounts can help you create a trust fund for a minor child or grandchild, which the child can fully control once they reach the age of majority.
In conclusion, despite the escalating cost of higher education, it is crucial for parents to start saving early to capitalize on their investments. The most appropriate college saving plan may well be a 529 savings plan leveraging its tax benefits. However, it’s important to remember financial circumstances vary widely, so customize your savings strategy as your family expands and financial situation shifts over time.
