You remember your college years quite well. Perhaps your parents saved money for you to attend and you want to do the same for your child. Or, you might have financially struggled your way through the years because your parents weren’t able to create a child education plan for you.
Maybe you weren’t able to receive your degree because of financial reasons. Whatever the case may be, you now have children of your own and you know just how important it is to send them to college. Because of your own experiences, you want to start planning as soon as possible.
However, this type of investment is going to take some serious financial planning. Are you ready to set your children up for their future? Continue reading below for simple strategies for saving earlier!
Stop Wasting Time
The first step to saving up for your children’s education is to stop wasting time! A child education plan is something that takes years. It’s a long-term investment and financial goal.
It’s not something that can be done overnight and the sooner you begin, the easier it’ll be for you to save. The best time to begin planning for your children’s education is the minute they’re born. If your children are already a bit older, don’t panic.
Begin saving as soon as possible and you’ll be on the right path. If you begin the process at birth, you have almost 2 decades to save up enough money.
Plan for an Increase
Always plan for an increase in college expenses. This is due to inflation; as the years pass by, the cost of education increases.
Colleges raise the price of textbooks, courses, and other college expenses each year. This is important to keep in mind when saving for your children’s education. You can’t save based on the cost of college today.
You have to save enough money based on what college will cost when your children are ready to attend. Each college is different, so a good way to get a better number is to call around or do your research on several colleges. See how the prices have changed throughout the years and give yourself an estimate.
Open an Education Savings Account
When you’re ready to start putting money into an account, consider opening an education savings account (ESA). This account allows you to save $2,000 each year per child. The account also grows tax-free, so that’s an added benefit.
The rate of return depends on how much money you invest in the account, but you’ll get a much higher return on money in an ESA than you would in a regular savings account. And once your children are ready to attend the school of their liking, you can withdraw the money without having to pay taxes as long as the money is for educational purposes.
Do keep in mind, however, that there are income limits for this account that you must qualify under.
Open a Uniform Transfer Account
A uniform transfer account, or UTMA account, is a savings account that’s set up with one purpose in mind: saving money. This means the funds don’t have to be used on college expenses only.
This account is set up under your child’s name; however, you’re the one who manages it. It’ll continue this way until the minor is 21 years old. Once the minor reaches this age, he or she has the right to withdraw the money and use it however they’d like, whether that’s on college costs or something else.
These accounts are a good way to save money, but the downfall is the beneficiary can’t be changed once selected and they can use that money on other things if they’d like.
Set up a 529 College Plan
A 529 college plan doesn’t have any income limits on it like the ESA does. However, you do need to be wary about what type of 529 college plan you take out. Be sure to always go over the details.
A good tip is to stray away from plans that change your investments depending on your child’s age or a plan that’ll freeze your options. The upside is you can change the selected beneficiary, so if one of your children doesn’t attend college, you can place it in another child’s name.
The money in this account will also grow tax-free, and you’ll be able to add more funds to it than in an ESA.
Set up a Prepaid Tuition Plan
An alternative to a 529 college plan would be a prepaid tuition plan. For this plan, you’ll simply pay the cost of tuition in advance. For this plan, it’s important to have complete faith that your child will attend an in-state public college.
There’s a predetermined price set in place, and you’ll start paying on this amount at the time of opening the plan. You can change the beneficiary on this plan as well, but there’s a penalty involved. You also need to be certain that your child will attend a public in-state university because this plan won’t cover other types of colleges.
Save 1/3 of College Costs
When all is said and done, it’s understandable if you can’t save up the entire amount of education costs. This is why you should aim for saving around 1/3 of the college costs. The leftover expenses can be paid using grants, scholarships, loans, and more.
Installment loans are one option that you have for gathering all of the money needed for your child’s education at one time and then paying it off throughout the years. There are several options for you, but the best way to reach your goal is to start as soon as you can.
What’s Your Child Education Plan?
After reading our guide above, we hope you now have a better idea of how to save for your children’s future. So, what’s your child education plan look like? If you’re not sure, it’s time to use this information given above and put it to use.
Remember, the sooner you begin to plan and save, the easier it’ll be to reach your goals.
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