Smart Ways to Save For Your Child's Education
With the price of college educations ever-growing and the collective student debt in the US showing no signs of diminishing, it’s more important than ever to save for your children’s education in advance. When you don’t save money for college, it can mean reduced options for where your child attends college and can leave you or your child with overwhelming student loans upon their graduation.
Creating a plan to save for college can seem overwhelming, especially if you’re working within a tight budget; but saving is possible. If you need some ideas or options on how to save for your child’s college fund, take a look below.
Budget for Savings
As with any savings goal, when you are trying to save up for your children’s college tuition, it will need to be worked into your monthly budget. Before choosing the method you would like to use to grow and retain college savings, take a moment to calculate your budget and how much you can contribute each month to the savings goal; make sure to stick to your savings budget and contribute regularly.
Open a Roth IRA
One of the most popular methods for saving for both college and retirement is a Roth IRA. With a Roth IRA, the account holder can save tax-free money towards retirement, but it also gives you the option to use funds to go towards educational expenses or home ownership after the account has been open for at least 5 years. Any withdrawals from your Roth IRA should be tax-free and penalty-free. The only catch to this type of account is that contributions are limited to no more than $5,500 per year, but this may be the perfect fit for some savings plans.
Check into Prepaid Tuition
A little-known option available with some college institutions is prepaid tuition. A handful of states will allow you to make pre-payments towards state colleges in advance. The benefit of this is it will lock in your tuition rate; so, if tuition goes up at the college, the amount you prepaid will continue to account for the same percentage as when you began the plan. This is also a tax-free tuition savings option, however, you will need to be sure the college you are saving with is the one your child plans on attending, except for Massachusetts who will offer you a full refund plus interest if your child chooses to attend elsewhere.
Open a 529 College Plan
A 529 savings plan, also known as a Qualified Tuition Program (QTP), is a popular option for college saving and is widely available in at least 30 states. The QTP savings plan will allow you to utilize your after-tax savings funds tax-free to go towards tuition and other expenses; however, if your child does not choose to attend college or you withdraw the funding for other use, you will typically face penalties and charges for doing so.
Other Options
When saving for college is not an investment you can make at the time, it’s essential to check into other resources and start working towards your child’s college goals accordingly. Here are some alternatives that may be helpful:
- Focus on scholarship opportunities. Scholarships can be given in accordance with academic achievements, sports achievements, and other works and volunteer efforts your child has performed. Get a feel for where your child is excelling in school or in activities and research what scholarships may be available to them in those areas.
- Apply for grants and aid. There is a large number of grants and aid available to those who qualify for assistance, both at the Federal and state levels. Take the time to familiarize yourself with what your child may be eligible for and be sure to apply when you’re close to high school graduation.
- Research student loan types early and in advance, so you can formulate a plan for repayment of the student loan. Planning ahead and researching before taking out any student loans can save a lot of money and hassle in the long-run.