How to Save for Your Child’s College Education
Posted on November 3, 2017 by CHS
So many parents dream for their child to grow up to be a successful adult and part of that dream is going to college. However, a college education does not come cheap. While thinking about how to pay for college may seem daunting, there are many ways you can plan, now, for the future and ease your financial burden.
529 College Plans
Also known as Qualified Tuition Programs (QTP), a 529 Plan is a college savings plan offered in more than 30 states. With a 529 plan, you invest taxed money into the plan and are able to withdraw the funds, and any investment gains, tax-free for qualified education expenses, such as tuition and books. Plans offered can vary by state. If your child decides not to go to college, you may have to pay fees and tax penalties when withdrawing the funds. The penalty can be avoided by transferring your account to another qualified beneficiary for assistance in their college expenses.
Roth Individual Retirement Arrangements (IRA) is a tax-advantage retirement savings account that can be used as a college savings plan. Similar to 529 plans, you contribute taxed money and you will be able to withdraw any investment gains later tax-free, commonly after the age of 59 ½. However, if you use your Roth IRA for qualified education expenses, you can withdraw funds from this plan tax-free and penalty-free after five years. With a Roth IRA there are no penalties if your child does not go to college; funds will remain in your retirement account.
You can explore additional college saving options at College Saving Plans.
Here are some extra saving tips for your child’s college education provided by author Kristen Kuchgar in the article How to Save for Your Child’s College Education.
The earlier you start, the more money you will be able to save. Saving even $50 a month from the day your child is born could give you $20,000 by the time your child turns 17. This figure assumes a 7% return on investment, according to Finaid.org. Even if you are late into saving, it is never too late to start. Start saving whatever amount you can now, as it can lessen the stresses of college-related expenses for you and your child later on.
Keep Big Account Balances in Your Name
If your child has $3,000 under their own checking or savings account, it will not impact their financial aid, according to Bankrate. However, anything above, $3,000 will have 20 cents subtracted from every dollar. If your child starts receiving a lot more cash, then you may want to consider leaving it in your name until after college.
Find More Ways to Save
Review all of your spending and see if there is anything you can cut out to increase your savings. For example, you might have a monthly $15 subscription that you don’t use often. Cancel the subscription and put that money into a savings account, that itself can turn into $3,060 in 17 years of saving.
Automate Your Savings
Similar to auto-paying your credit card balances or direct-depositing your paycheck, see if you are able to automatically deposit a portion of your paycheck into a 529 plan account or any savings accounts you wish. It will make your life easier as you won’t have to transfer the funds manually every month.
For many families, paying for their child’s college education is extremely difficult. Some college students pay for their own tuition through a combination of jobs, scholarships, grants, and student loans.
The following provides some tips to help reduce student loan debt provided by author Kristen Kuchgar in the article How to Save for Your Child’s College Education:
Motivate Your Child in High School
The better grades your child has, the more likely he will be to obtain better scholarships. Being a student with good grades can allow him to take advanced placement (AP) courses which can count as college credits and reduce a part of their tuition. Motivate your child to do well in high school and he can receive better scholarships and gain AP credits to help with their student loans in college.
Encourage Your Child to Work through High School
There are many positive factors of having your child work part-time during high school, such as time management, responsibility, life skills of the working world, and budgeting. You can teach your child about putting part of their paycheck into their college savings account. This part-time experience will become vital for them as they begin looking for full-time jobs after college.
Teach Your Child about Student Loans
Your child’s school may have workshops or seminars regarding the Free Application for Federal Student Aid (FAFSA) and other financial aid sources. While this can all be confusing for your child, you can be there as his guide. Teach your child about financial aid, student loans, what they will owe, and how it can affect them in the future. Help him keep track of financial aid and scholarship deadlines and make sure your child is able to fill out the FAFSA correctly. Through this conversation, also teach and encourage your child to budget, not misuse student loans, and pick the best college, based on his needs.
Here are additional resources to help you save for college education: