Parenting comes with a hefty price tag. The average costs attributed to raising a child from birth to the age of 17 exceed $300,000, per the latest research from The Brookings Institution. Such figures exclude the substantial expenses associated with tertiary education. Establishing a college fund for your children is one effective strategy to support their transformation into successful adults. Looking for insights on how to start your child’s college fund?
THE REALITY OF COLLEGE EXPENSES
U.S. News’ annual survey indicates that averaged tuition fees for the school year 2022-2023 fluctuated between $39,723 (private institutions) and $10,423 (public, in-state institutions). Assuming the current payment model for education remains, college expenses are likely to keep escalating.
The growth rate of college expenses typically doubles the annual inflation rate, a pattern that experts predict will persist in the future. Based on a stable 6% college cost inflation rate, here’s an estimate of what annual tuition, fees, and room and board may cost by the time your youngster (or grandchild) is college-bound.
If you’re contemplating ways to gather college funds, consider the following:
STRATEGIES FOR COLLEGE FUND SAVING
Planning and dedication are key to building a fruitful college fund for your children. See the following practical suggestions:
START SAVING EARLY
The sooner you start to accumulate funds, the steeper your financial growth. Beginning a college fund at your child’s birth is ideal because with time, small, regular investments compounded over years will amount to a considerable sum, negating the need for large monthly or annual contributions.
UNDERSTANDING THE EXPENSES
Tertiary education costs encompass myriad items, some of which may catch you off guard. A complete understanding of these costs will allow you to compare different institutions and discover ways to diminish your expenses, thus providing a target savings figure.
SELECT A PROPER SAVINGS PLATFORM
If you’re intent on setting aside college funds for your child from early on, certain savings platforms can assist you. Consider tax-benefited accounts such as 529 plans, or look into Coverdell Education Savings Accounts (ESA).
AUTOMATE YOUR SAVINGS
Setting your college savings account to receive automatic deposits will ensure constant financial growth. Each monthly input increases your savings, with compounding interest pushing the total even higher. An automated savings setup maximizes your account’s growth, ensures regular contributions, and ward off the temptation of deviating the money elsewhere.
ENCOURAGE FAMILY CONTRIBUTIONS
Share your aspirations of college savings with close relatives who might be eager to contribute during special occasions. You can include a link to your child’s 529 savings account on a birthday invitation and express the option to contribute as a gift.
INVEST SMARTLY
Adopt a diverse investment scheme based on your risk acceptance level and timeline. Numerous college savings plans offer an array of investment opportunities. Regularly review and adapt your investment plan as required.
EXPLORE SCHOLARSHIPS AND FINANCIAL AID
Keep abreast of potential scholarships or financial aid. A college grant is free money that, while not a replacement for savings, can help to defray some costs.
WHERE SHOULD YOU PUT YOUR MONEY?
529 SAVINGS PLANS
A 529 savings plan or a state-backed investment account earmarked for academic purposes should be your first choice for college investment. A 529 plan allows for tax-free withdrawal for eligible educational expenses, including college and K-12 tuition.
Traditional and ROTH IRAs
Consider parking your money in Traditional and ROTH IRAs. An IRA is a savings account with tax benefits, where you can hold investments such as stocks, bonds, and mutual funds.
CUSTODIAL ACCOUNTS
Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are custodial accounts that can house money or assets for underage children or grandchildren. Once they hit the age of majority (between 18 to 21 years, depending on your state), ownership transfers, and they may use the money as they please, no obligation to use it for educational purposes.
THE TAKEAWAY
While tertiary education costs are soaring, early-stage savings can ensure a higher return on investments. Once parents decide the portion of their child’s college education they’re willing to pay, they can devise a plan for monthly contributions. A 529 savings plan, brokerage account, or prepaid tuition plan are viable options, with a 529 plan offering more tax advantages and flexibility.
Remember, each family’s financial status is unique, and plans for college savings should be tailored accordingly. Frequently review and tweak your strategy according to your family’s requirements and the evolution of your financial situation.
