College has long been an important step on the path to securing a better life. However, its importance has increased so much in recent times that it has become almost indispensable. Unfortunately, a college education is also expensive, meaning that parents with college-bound kids should start saving earlier rather than later.
Here are some great tips to follow when you start thinking about building your kid’s college fund:
- Most states have something called a 529 college savings plan, which lets parents invest funds, earn interest, and then spend the investments on college expenses without being taxed in the process. Similar examples include but are not limited to the Roth IRA, the Coverdell ESA, and UGMA and UTMA custodial accounts. Each has its own particular combination of upsides and downsides, meaning that interested individuals should do some careful research before investing in them.
- Perhaps the single biggest problem with college tuition is how much it can balloon in even a short period of time. One solution is to sign up for a prepaid college tuition plan, which lets parents pay a set percentage of the tuition now to waive the same percentage of the tuition when their kids start attending school. It’s important to note a couple things about these types of plans. First, spots are limited, meaning that parents should sign up as soon as possible. Second, it can put a limit on their kids’ choice of schools.
- If you are planning to build a kids college fund, you need to start as soon as possible due to the power of compound interest. In brief, compound interest means that you can collect interest on the interest that you earn, meaning that even small sums can build up to impressive figures when they have been accumulating for a decade or so.
- You may want to start cutting back on discretionary purchases to make sure that your kid’s college fund is prepared for when your kids attend school. Make it easier to save by setting up an automatic withdrawal that goes directly into your savings each month.
- Finally, put the savings under your name rather than your kids’ name because once they exceed $3,000, your kids’ ability to receive financial aid can become impacted.
If you want to learn more about saving up for the future, stay posted to the Northcash blog!