With the rising costs of tuition, many parents are concerned about how they can provide their children with a college education without burdening the family financially. Affording college is a major worry for families, but there are several smart strategies to help you save for your child’s education while also taking care of your personal finances.
In this article, we will explore the best ways to save for your child’s college education and maximize your funds, ensuring a brighter future for your child.
1. Get A Head Start
When considering your child’s education, it is important to plan ahead. Take into account whether you want to send your child to private or public school. Private schools have significant costs, with the average cost for private elementary school being $9,398 per year, and private high school averaging $14,205.
If you are not financially stable, consider sending your child to public school, which is free. The money you save by opting for public school can be deposited into a savings account for their college education. However, if you have the means to send your child to private school and still contribute to their college fund, go for it!
2. What If I Have Multiple Children?
Having more than one child in college simultaneously can reduce your Expected Family Contribution (EFC), determining the need-based aid your family qualifies for. While this may increase the aid, it might not be as much as expected. Therefore, it is still important to open a savings account for each of your children.
If your children are the same age, consider opening individual accounts as withdrawals can only be made for the named beneficiary. While changing the beneficiary name is possible, it requires contacting the bank and making a request for each withdrawal made for a sibling.
Another option to pay for college is by encouraging your children to apply for outside scholarships. It is advisable to start looking for scholarships early in their high school years. Websites like scholarship.com and fastweb.com provide numerous scholarship options. You can also explore other gift aid options at How To Pay For College.
3. Open a Savings Account
Opening a savings account is a great way to contribute to your child’s education. The sooner you start saving, the more money you will have when the time comes. Here are three ways you can save for your child’s college education:
- 529 Plans: This plan helps families save for future college costs. Every state offers 529 plans, and you can choose the state that suits you best. Investments made to a 529 plan grow tax-deferred, and withdrawals are tax-free if used for qualified education expenses.
- Roth IRA: Although primarily a retirement savings account, a Roth IRA can also be used for college savings. Funded with post-tax income, Roth IRAs have income eligibility limits. If your income is high, you may not be able to contribute to a Roth IRA.
- Taxable Investment Account: This is a regular brokerage account funded with after-tax money. It offers flexibility when using funds for college or other financial goals. There are no required minimum distributions, allowing you to contribute the amount of earnings you prefer.
4. Get Your Child to Pitch In
Consider having your children contribute to their own college expenses by saving in a custodial account instead of their personal fund. This is especially beneficial if they have a significant sum to contribute. Colleges expect up to 20 percent of a student’s savings to go towards college, while counting less than 6 percent of the parents’ savings. This is true even if the assets were gifted by a relative or from an outside source.
By keeping college savings in a parent’s account, you improve the chances of receiving more financial aid. Additionally, it enables you to allocate the funds correctly, such as for room and board, while a child might prioritize other expenses that may not be essential for their education.
5. Organize Your Finances
While college savings are crucial, it’s important to balance them with other expenses in your life. Avoid pouring all your money into a college account at the expense of your own financial stability. Remember, there are alternative options for funding your child’s education, such as federal student aid, scholarships, and loans.
First, ensure that your credit card balance is paid off before focusing on a college fund. If you’re considering taking out Parent PLUS Loans, remember that they require a credit check. Having good credit will increase your chances of obtaining a low-interest rate on these loans.
Conclusion
Saving early is the best way to build a college fund for your child. By incrementally increasing your savings each month, you can make a significant difference when your child heads off to college. There’s no better time than the present to implement these smart financial strategies and secure your child’s educational future.
