Strategies for Cultivating Your Child’s College Fund

Raising children isn’t cheap, and recent data from The Brookings Institution indicates that the average cost of raising a child up to age 17 is over $300,000. This doesn’t even include the hefty expenses of higher education. To set your child up for success, it’s a good idea to start a college fund. But how do you get started?

First, understand the costs of college. U.S. News reports that for the 2022-2023 academic year, tuition ranges from an average of $39,723 at private colleges to $10,423 at public, in-state colleges. Since college costs often rise at rates double that of inflation, these prices are likely to keep increasing.

To create a solid college fund, start saving as early as possible—ideally from the time your child is born. Regular monthly or yearly investments let you benefit from compound interest, which helps your savings grow over time and reduces the monthly savings burden. Beyond tuition, be aware of other related expenses to accurately set your savings goals.

For early savings, consider using tax-advantaged accounts like 529 plans and Coverdell Education Savings Accounts (ESA), which offer tax benefits and flexibility for education-related spending. Setting up automatic deposits can help you save consistently without much effort.

Let family and friends know about your college savings goals. They might contribute money to your 529 savings account during occasions like birthdays. Also, having an investment strategy in place is crucial. Depending on how comfortable you are with risk and how much time you have, explore different investment options and adjust as needed. Additionally, look into scholarships or financial aid, which can significantly help reduce education expenses.

When deciding where to put your money, consider a 529 savings plan or a state-sponsored investment account for education. These plans allow tax-free withdrawals for college and K-12 tuition and other qualified expenses. Another option is investing in Traditional or Roth IRAs, which are tax-advantaged accounts containing investments like stocks and bonds. Custodial accounts such as UGMA or UTMA accounts enable you to save money and assets for your child until they reach adulthood.

With the fast-rising cost of college, it’s crucial to start saving early and adopt sound investment strategies to partially or fully fund your child’s education. Everyone’s financial situation is different, so tailor your savings and investment plan to fit your unique circumstances and stay flexible to adjust as needed.