Nearly every parent dreams of being able to send their child to college and being able to pay for it. The challenge of saving for a college education can seem like a nightmare to many, but it doesn’t have to be. There are some strategies every parent should keep in mind as they try to save for their child’s education.
Getting started
The sooner the saving begins the better, though it’s never too late to get started.
* Advice – The first step should be to meet with a financial advisor to discuss options and the particular situation.
* Make an estimate – Research possible universities the child may attend and get an idea on how much tuition will cost in the future. This will allow a savings goal to be established.
* Contributions – Make it a point to save money with every paycheck. The easiest way is to arrange for an automatic deposit so the temptation to spend it before saving won’t be there. In addition, the contribution amount should be increased each year.
* Get help – Encourage the child to contribute to the college savings once they are old enough to get a part-time or summer job. Agree to match their contributions if possible. Ask relatives to consider donating to the fund during birthdays and holidays.
The plans
Simply saving money won’t help if it’s not saved in the right way. There are a variety of options available and each should be investigated.
* Normal savings – Using a bank savings account will help and may need to be part of any plan but it won’t likely make enough money on its own to cover all of the tuition. Interest rates on savings accounts are low, especially these days, and funds will not accumulate fast enough.
* Educational savings – Many states sponsor plans called 529s, which come in two varieties. The first is a savings account in which money is deposited into an account similar to a 401(k) that is managed by an investment company. The beneficiary for maintaining overall control and can tell the investment company how the funds should be invested. The benefit of this plan is that the withdrawals are tax free as long as they go toward an educational purpose. The other version of a 529 requires a contract between the beneficiary and participating schools. The contract states the parents or student will make specific contributions into an account and when it comes time for college the school agrees tuition will be covered by the account. This allows for a future education to be paid for at today’s rates.
Whenever the decision is made to start saving for a college education the best thing to do is come up with a plan, which should include how much money will be needed and how it will be saved. Once that’s done, the saving will pretty much take care of itself, allowing parents to enjoy the satisfaction of securing their child’s educational future.
About our guest author: Katherine Watkins writes for a website that provides information about home equity loans, which is one way for parents to find extra cash to pay college fees.