Parenting involves significant financial commitments. The Brookings Institution reveals that, on average, the costs involved in raising a child from birth to seventeen years can exceed $300,000, and this sum doesn’t include tertiary education. Therefore, a college fund is often deemed the safest step towards aiding your child into a prosperous adulthood. Here’s guidance on setting aside money for their education:
THE FINANCIALS OF HIGHER EDUCATION
As per U.S. News’ yearly analysis, the average tuition fee for the 2022-2023 academic year is approximately $39,723 for private colleges and $10,423 for public, state-managed institutions. Barring some major shift in education financing, these costs are projected to continually rise at almost twice the annual rate of inflation. Accordingly, here’s an idea of the cost for each year of tuition, room and board by the time your child begins their college journey (assuming a steady 6% college cost inflation rate):
If you’re exploring strategies to save for college, here’s a list of options:
METHODS TO SECURE FUNDING FOR YOUR CHILD’S COLLEGE TUITION
Accumulating funds for your children’s college education is a prudent monetary move that demands careful consideration and consistency. Here are some feasible actions:
ACT EARLY
The sooner you start, the more time you provide your savings to accumulate. Ideally, setting up a college fund at your child’s birth is optimal. With compounded interests and regular deposits, these funds can multiply over many years, therefore lessening the monthly or yearly saving pressure.
KNOW THE EXPENDITURES
Understanding the variety of costs associated with college is important. This knowledge will assist in comparing institutions and exploring cost reduction options, resulting in a clear saving target.
SELECT THE APPROPRIATE SAVING VEHICLE
If your goal is to start saving for college shortly after birth, certain savings vehicles can assist. Tax-beneficial accounts such as 529 plans offer potential tax advantages and versatility for education-related expenses. Coverdell Education Savings Accounts (ESA) are another alternative.
AUTOMATED SAVINGS
Automating deposits into your college savings account, allows your savings to steadily grow through regular monthly contributions and compounded interests. This method also curtails the temptation to spend the money elsewhere.
ENCOURAGE FAMILY CONTRIBUTIONS
Tell the wider family about your objectives. They may feel inspired to donate during special occasions like birthdays or holidays.
WISE INVESTMENTS
Investment strategies should be diversified based on risk tolerance and time horizon. Regularly review and adjust your investment approach.
EXPLORE SCHOLARSHIPS AND FINANCIAL AID
Look out for scholarships or grants. While these awards won’t replace your savings, they can help diminish some costs.
WHERE TO INVEST YOUR MONEY?
529 SAVINGS PLANS
A 529 savings plan is a state-run investment account exclusively for school-related expenses. With these plans, withdrawals made for qualified education expenses are tax-free. The plans comprise of various investment vehicles such as mutual funds and ETFs.
TRADITIONAL AND ROTH IRAS
IRAs are tax-benefited investment accounts for stocks, bonds, and mutual funds. You can adjust the investments based on your evolving needs and goals.
CUSTODIAL ACCOUNTS
Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts are custodial accounts that allow trusts for a minor. The child gains full access to the account after they reach the age of majority.
THE CONCLUSION
While the cost of college is on the ascent, it’s important for parents to start saving ASAP for maximum investment returns.
After parents decide what percentage of their child’s college education they are willing to cover, they can form a monthly contribution plan involving 529 savings plans, brokerage accounts, or prepaid tuition plans. However, the most tax benefits and flexibility are generally gained from a 529 savings plan.
Remember, each family’s financial situation varies, so it’s crucial to adapt your savings plan for your child’s college education to suit your specific needs and circumstances. Regularly review and adjust your plan as your financial situation and family mature.
