As so many graduate students are overloaded with their student loan debts, the subject of money is always important when families talk about sending kids to college. For most students and parents, the subject can be pretty scary, because many parents are still paying off their own loans. Every parent wants a good education for his children, to help them get good jobs and earn higher salaries they couldn’t with just a high school diploma.
How to start saving for your children’s education? Some people choose not to start at all, as low-income and middle-income families cannot save enough on average. We’re presenting you with advice on how to start saving for your child’s education, presenting all the options, some of them which you maybe haven’t been acquainted with.
A Roth IRA account can be used as means for college savings, while it’s already a popular type of retirement savings account. You contribute after-tax money and can later withdraw any investment gains tax-free (most often after age 59-1/2) for retirement or to pay for educational expenses after 5 years. There are contribution and income limits: you can contribute only $5,500 per year, or if you’re over 50 – $6,500.
529 College Plans
This savings plan is also known as QTP (Qualified Tuition Program). First, you invest your after-tax money into a 529 College Plan, and you’re allowed to withdraw the funds and investment gains tax-free to pay for education expenses. Contribution limits are often high when compared to Roth IRA accounts. In case your child doesn’t go to college, you will have to pay tax penalties and fees when withdrawing funds. Start by contributing in small increments (you’re allowed to make one change to your account per year).
Prepaid college tuition plans
Pay for parts of college tuition now and lock in current prices, which will protect you from tuition changes if your child is years away from college. For example, if a tuition for a school currently costs $20,000, a $10,000 contribution today will buy you half of a year’s tuition whenever your child is old enough and ready to attend that school. If tuitions increase to $30,000 before your child turns 18, your initial investment will then be worth $15,000 – still half of the total bill.
UGMA and UTMA Custodial Accounts and Coverdell Education Savings Account
Financial gifts to a minor can be kept in a custodial account until the child turns 18 or 21 (which makes these accounts suitable for education savings). However, when your child applies for a student loan, the assets from a UTMA or UGMA account can affect the amount of aid they will receive, as the money is considered to be their asset. Also, as the money belongs to them, not you, they can also choose to spend it on something else instead of their education.
Education saving tips
Start saving early and make it a habit. If you start saving $50 each month, from the moment your child is born, along with a return on investment, you can save about $20,000 by the time they turn 17. You can make it even easier for yourself by automating your savings and depositing a portion of your check into a savings account. No matter how old your kids are, start saving now if you want to help fund their college education.
Set your savings goals, because you need a plan if you’re about to start this kind of long-term saving. How much can you save each month? Figure it out, and make goals (it’ll keep you motivated and on track).
You can take up other ways to save more money. Increase your savings by taking a better paid or a part-time job. Also, help your kids not to spend more time in the education system than they should. For example, if your child has enrolled at Griffin, you can find assessments and exam notes from Griffith via online services, as a means for helping your child with exam preparation.
You shouldn’t make huge cuts and suffer due to college savings because you have other financial needs that are as important – paying off credit cards, student loans or other high-interest debt, save for retirement, and build an emergency fund for yourself.
According to the Australian Bureau of Statistics, education costs in 2016 increased by 5.5% over the year. Education-specific investment options can be part of the solution for education savings according to financial planners, while most parents often pay for their children’s education from a number of sources.