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Recent Posts:Save For Your Children's Education Now (Even If They Haven't Been Born)
College is expensive, as you’ve no doubt learned for yourself. However, regardless of what your degree cost, your children’s education is likely going to cost much more. Even if you’re still trying to figure out how to pay for daycare, you can save yourself an enormous amount of stress down the road if you start saving for your children’s college education now.
Using a 5 percent inflation model, today’s $21,500 annual public college tuition will be more than $51,000 in 18 years. No matter which way you calculate it, your child’s bachelor’s degree is going to set you back a small fortune. Four years at a public university for a child born today will carry a total price tag of around $225,000; private institutions are projected to be nearly double that amount. While these numbers can be intimidating, there are a few things you can do now to lighten the load.
Invest in a 529 plan.
A 529 plan is essentially an education savings account. The money in these accounts is earmarked for college and come with a few tax benefits, such as earnings not being subject to federal tax rates. Each state has a different 529 plan, but you are not limited to your location – you can save in any state with agreeable terms. Most states also offer qualified tuition programs under Section 529 of the IRS Code. A 529 plan is the most valuable when used to purchase a year’s tuition; it will always be worth a unit of one year – even if your child won’t be moving into a dorm for a decade or more. Since the plan is owned by the depositor, the money can be transferred to another child if plans change for the original designee. 529 prepaid plans are most beneficial to middle and upper-income families that likely won’t qualify for federal benefits.
Consider a custodial account for education expenses.
Coverdell Education Savings Account and Uniform Transfer to Minors Act (UTMA) accounts serve as trust funds for your children’s education. UTMA plans work best when you have assets, including annuities, stocks, and bonds, that you’d like designated for college expenses. A Coverdell account is an exceptional option if you plan to invest less than $2,000 a year.
Lower the cost of your child’s education.
If you can’t quite stomach the thought of spending $225,000 on a degree, there are ways to reduce the amount of money you’ll need for your child’s education. Once your child hits high school, they may be eligible to take dual classes that provide college credit. Many community colleges offer classes that can be transferred to a four-year university at a considerably lower cost. Of course, scholarships and grants are yet another option to help pay for college. There are thousands of different scholarships for everything from bowling to football to simply sharing a common interest with a fund’s benefactor. Children in the upper echelons of academia – those with IQs of 130 and above – may be eligible for scholarships based on academic skill and for their potential contributions to humanity.
Look into life insurance.
Although it’s never fun to consider what would happen if you suddenly passed away, making sure you have a plan in place, which includes getting your estate in order, will help protect your family’s financial future. Many people opt for a 30-year term insurance policy, which will grow in value over the years. Although the idea of getting life insurance might sound intimidating at first, there are many helpful guides available online that can explain the ins and outs of these policies.
Saving for your children’s education is an important part of parenting. However, keep in mind that you cannot use 401(k) monies to pay for your student’s education without incurring penalties, or worse, being disqualified from company matching policies. Other potential pitfalls facing parents include penalties for calculating overlapping tax credits and failing to contribute to the 529 plans once the child steps foot on campus.
Brittany Fisher Brittany Fisher | 08/23/2019
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