There is only one secret to succeeding in saving for your child’s education. That secret is this: start early. How much money you set aside for your child’s college education is a very important matter to think about, but it is definitely not as crucial as how soon you begin saving for your child’s education. In short, timing is more important than amount. College education costs are skyrocketing, with no reversal of the trend foreseen in the near future. So, it is only logical to start saving early. The sooner you start, the better—even long before your first child is born, if you prefer. Do you know how? This article will teach you some ideas on how to save for your child’s education.
- Open a special savings account. Savings accounts are popular choices for many people, despite the fact that savings accounts have the lowest interest rates among the various options that you have. In particular, the specific type of savings account that you will open is an Educational Savings Account (ESA), which is tax-free if qualified and which allows you to deposit up to $2,000 annually into the account. The savings account that you open will contain all the money that you have set aside for the sole purpose of saving funds for your child’s college education. You should not withdraw from this account. It takes some discipline on your part for this to work. If you do have such discipline, you might want to invest your savings in Certificates of Deposit (CD) also known as time deposits. Such form of investment will get you a higher interest rate than regular savings accounts, though the rates are still lower than other options.
- Enroll your child in a prepaid college plan. Besides being tax-free (if it qualifies as education expense), a prepaid college plan entails lower risk. Such educational plans usually place restrictions. For example, while you may pay premiums for your child’s college education at today’s tuition rates, your prepaid college plan may restrict your child’s college choices to those that are public and/or located within the same state. Some plans do allow off-state colleges, but will pay for tuition equivalent to that of in-state colleges; this means that you will still need to raise funds to augment the difference.
- Invest in higher-interest, but riskier options. You can place your savings in a state-managed investment plan that often does not keep your annual contributions at a low end. Interest and withdrawals are exempted from taxes; neither will they prevent your child from availing himself of financial aid. Though, such investments tend to be risky, as they rely on stock market ebb and flow; so, profit is not necessarily guaranteed.
- If you have an existing IRA, you can funnel your savings to your child’s educational fund. In most cases, especially if your expenditure qualifies as educational expense, you can enjoy exemption from penalty charges (which are usually around 10%) for withdrawing from your savings before reaching the age of 59.
If you value your child’s education so much, you will easily see that your investment in her or his education today is a worthwhile investment for tomorrow. Depending on many factors, such as your current financial situation, you have many options to choose from. Choose well.