How (and why) to Start a College Fund
Whether you have kids already or are thinking about having them someday, it’s never too early to start saving for their higher education. College is an important investment that can open doors to career opportunities in the future. Even if your child is not interested in going to college, it’s still worth saving for alternate educational options, such as technical schools and certification programs.
The Cost of College
College tuition is an expensive investment in your children’s future, costing an average of $27,330 for in-state public colleges, $44,150 for out-of-state, and $55,800 for private colleges. For many Americans, those numbers can feel daunting if you’re unprepared. Having money set aside for this expense is a great relief. Without savings, teenagers are often faced with the difficult task of weighing the benefits of college against the costs of student loan debt. When their parents or guardians can help make this choice easier, it can make higher education a more realistic option.
Saving for College
There are various ways to go about saving for college, each with their benefits and drawbacks. Educational trusts such as HEETs (Health and Education Exclusion Trusts) are a great way for grandparents to help their grandchildren attend college. Other trusts such as UTMAs (Uniform Transfers to Minors Act) give the minor direct control of the funds when they come of age. This can be useful or risky depending on the responsibility of said minor! One of the most secure ways to save for your kids’ education is with a 529 savings plan.
529 Savings Plans
A 529 savings plan is an investment account that offers tax benefits when used to pay for the education expenses of a beneficiary. There are many different options for 529 plans, so it’s a good idea to compare plans and consult an expert. 529 accounts can be used to pay for college, student loan repayments, apprenticeship programs, and even K-12 tuition. One of the best benefits of a 529 savings plan is that when it is used to save for college, these savings have a minimal impact on financial aid eligibility.
As 529 plans are investment accounts, the balance can go up and down based on how the investment options are performing. A good investment account will outpace a regular savings account over time, providing the investments are chosen wisely. 529 accounts also function similarly to Roth IRAs where the initial investment is made after tax and the account grows tax-free. Withdrawals from 529 plans can also be made tax-free, providing they are “qualifying withdrawals” based on IRS criteria. Some qualifying withdrawals are college tuition and fees, schoolbooks and school materials, and room and board for students.
Discuss Your Options
However you choose to save for college, it’s worth discussing your options with a professional. Wealth Management Powered by Main Street Bank is a great place to start, with financial investment consultants who can find the right option for you based on your unique needs. When you’re ready to discuss saving for college, this is where you should start. Click the link below to connect with a financial advisor.
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