Creative Approaches to Growing Your Child’s College Fund
Raising children can be financially demanding. According to The Brookings Institution, it costs more than $300,000 to raise a child from birth to age 17, not including college expenses. That’s why setting up a college fund for your kids is a smart way to support their future success. Wondering how to start saving for their college education?
THE REAL COST OF COLLEGE
The U.S. News annual survey shows that during the 2022-2023 academic year, average tuition is about $39,723 for private colleges and $10,423 for public in-state colleges. If the education funding situation doesn’t change, these costs are expected to keep rising. College expenses increase at about twice the rate of general inflation, so it’s crucial to plan for future tuition, fees, and living costs for your college-bound child.
Here are some effective ways to start building a college fund:
WAYS TO CREATE YOUR CHILD’S COLLEGE FUND
Setting up a college fund for your kids is smart financial planning, but it requires a long-term commitment and careful preparation. Consider these practical steps:
START SAVING EARLY
When you save early, your money can grow over time. It’s ideal to start a college fund as soon as your child is born. With compound interest and regular contributions, your savings will build up, so you won’t have to save large sums each month or year to hit your target.
UNDERSTAND ALL THE COSTS
College expenses include more than you might think. By understanding all the costs, you can compare different schools and find ways to save money, helping you set realistic savings goals.
CHOOSE THE RIGHT SAVINGS PLAN
If you start saving early, you have access to various beneficial savings plans. Look into tax-advantaged options like 529 plans or Coverdell Education Savings Accounts.
AUTOMATE YOUR SAVINGS
Setting up automatic deposits into your college savings account ensures consistent growth. Regular deposits combined with compound interest will increase your savings. This also keeps you on track by preventing the temptation to use the money for other things.
GET FAMILY INVOLVED
Share your college savings goals with family members. They may want to contribute on birthdays, holidays, or other special occasions.
INVEST WISELY
Create a diverse investment plan that matches your risk level and timeline. Make it a habit to review and adjust your plan as needed.
LOOK FOR SCHOLARSHIPS AND FINANCIAL AID
Keep an eye out for scholarships and financial aid opportunities. While they won’t replace savings, they can help ease the financial burden.
EXPLORING INVESTMENT OPTIONS
529 SAVINGS PLANS
A 529 savings plan is a great way to save, allowing tax-free withdrawals for college or K-12 tuition and other qualified educational expenses. They offer options like mutual funds, bond funds, and ETFs, and you can contribute up to $15,000 tax-free.
TRADITIONAL AND ROTH IRAS
Individual Retirement Accounts (IRAs) let you invest in stocks, bonds, and mutual funds within a tax-advantaged savings account. You can adjust the investments as your goals change.
CUSTODIAL ACCOUNTS
Accounts like the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) let you save money or assets in a trust for a minor. A trustee manages the account until the child reaches adulthood (age 18 to 21, depending on the state).
IN SUMMARY
With rising college costs, it’s wise for parents to start saving early and maximize their investment returns. Decide how much of your child’s college education you can afford to cover, and set up a plan for regular contributions. Options range from 529 savings plans to brokerage accounts to prepaid tuition plans, but 529 plans usually provide the most tax benefits and flexibility.
Every family’s financial situation is different, so tailor your college fund plan to fit your specific needs and circumstances. Regularly review and adjust your strategy as your family grows and your financial situation changes.
