Consider a college fund as a student loan solution for your children’s education. Without saving, the likelihood of too much student loan debt is almost inevitable. It may seem early, but starting to save now can make a huge difference.
How to Start a College Fund
Even with the current promises of free or more affordable college tuition, there will still be costs for most students. Preparing as far in advance as possible can help to lessen the burden on you and your kids.
Calculating Your College Financial Needs
Begin the process of saving for college by using ACCC’s College Savings calculator. You will need to estimate how much you expect college to cost in order to determine how much you will need to save on a weekly, biweekly, monthly, or yearly basis. The calculator will provide an estimate to help get you started.
Creating a College Fund Using a 529 Plan
A 529 Plan is “operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild.”
- Withdrawals are tax-free and investments grow tax-deferred.
- Federal and state tax benefits – some states let you deduct a portion of your contributions from your state taxes.
- The person who opens the account remains in control of the account. The beneficiary does not gain control of the money at any specific age or time.
- Automatic investment options – a specified amount of money each month is withdrawn from your checking or savings account. Also, you can contribute as much as you want.
- If it turns out the beneficiary won’t be using the money, you can change the beneficiary or roll the funds over to a different investment. You can also transfer the money from state to state.
Additional Ways to Save for College
Some parents don’t like to be tied down to a 529 Plan. Another option is to just simply save money in a designated savings account or a CD. This won’t reap the same benefits, but it’s a safe way to save money for a college fund.
A more aggressive option is to invest some money in the stock market. Depending on your financial assets and knowledge of the market, this might be a great way to build a college fund without the restrictions of the 529 Plan.
Finally, if you weren’t able to save early in your child’s life, you will need to start to save by cutting back. Take a look at your budget and reduce as many expenses as possible. Cut the cable, reduce dining out, maybe downsize to one vehicle or a cheaper model. If you have any valuable items you would be willing to part with, consider selling them.
Evaluate your financial options as it relates to credit card debt, retirement savings, and other needs before committing to saving for your child’s college fund. Make sure you are on steady ground first. Any savings you are able to give your children will help them avoid student loan debt.