College is expensive. There’s no other way around it.
Even with grants and scholarships, you’ll still likely have to pay out of pocket for tuition, school supplies, and other financial obligations.
But, by starting a college fund when your children are young, you’ll have the money ready to go when it’s time for them to continue their education.
Not sure where to start? Don’t worry, we’ve got you covered. Let’s take a look at everything you need to know about starting a college fund for kids.
Isn’t A Savings Account Good Enough?
In general, no. Not if you want to get the most out of your money.
The interest you receive at a conventional bank is relatively low when compared to how your money will grow when it’s invested. But, not everyone knows how to properly invest (or has the time to learn how).
You’ll need an alternative to a savings account that allows your money to accumulate at an accelerated rate. Luckily, there are accounts that exist solely for this reason.
529 Savings Plan
This type of account allows you to invest in mutual funds, which are well-known for their reliability when it comes to getting long-term returns.
Since you’ve got plenty of years before your children go to college, you have plenty of time for your investment to grow. These plans also allow you to withdraw your money tax-free for qualified educational expenses, which can help you save even more.
Prepaid Tuition Plans
You can’t invest in mutual funds with this type of savings method, but you won’t need to with the benefits it provides.
Prepaid Tuition Plans allow you to lock-in your state’s current tuition at the time you open the account. Since average college tuition is increasing at an alarming rate, a simple $5,000 investment can end up being worth $15,000+ in the future.
While these aren’t available in every state, you can save thousands of dollars if you have access to them.
Coverdell Education Account
While you can only add a maximum of $2,000 per year for each child you have, this money is tax-deferred. This means you won’t have to claim your earnings on your tax income sheet each year.
The money invested in this account is also classified as your asset and not your child’s. As a result, there won’t be any impact on their capability to get financial aid.
If you choose to, you can also use money in this account to pay for other education expenses, such as private schooling.
Life Insurance Options
There are many different types of life insurance policies that will allow for cash value that you could use toward college funding. If you want to learn more about your eligibility for such policies, or other strategies that can help with college funding, reach out today.
Creating a College Fund for Kids Can Seem Difficult
But it doesn’t have to be.
With the above information about starting a college fund for kids in mind, you’ll be well on your way to making sure your children have everything they need when school starts.
Do you need help making a plan to save for your child’s future? Then contact us to learn about how we can help.
Get Started Today!
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This article is for informational purposes only. Please be advised that this article is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. PPG-139592 (9/19)(Exp. 9/20)