Ready to start planning for your child’s future? Read on for guidance to make the right choices for your family.
Setting up a college fund for your kids sounds easy enough, right? The challenge is knowing how and when to start. What’s the right age, how much should you save, and which savings plan is best?
The process can be overwhelming, but rest assured, BALANCE is ready to help. Check out these effective tips to get your college savings plan on track.
Tips To Save
Start As Early As Possible
When it comes to choosing the best time to start saving for college, the answer is simple: as soon as possible. Even if you’re pregnant now or intend to start a family soon, it’s not too early.
College is very expensive, and like any long-term financial goal, it requires consistent saving over time. That said, don’t get discouraged if your kids are older and you haven’t started putting money aside.
According to The College Board’s yearly report on college pricing, here’s the average annual cost of attendance (tuition plus fees) in 2021-2022:
- Public 4-Year College (In-State): $27,330
- Public 4-Year College (Out-of-State): $44,150
- Private Non-Profit 4-Year College: $54,800
And of course, these numbers are only expected to grow with inflation. But remember, you don’t have to accumulate all of this cash on your own; you can let a smart savings plan help.
Choose A Monthly Contribution You Can Handle
Every family’s college savings plan will look different. As you plan to make contributions to your child’s future, be sure you’re not putting your own future in jeopardy.
Avoid borrowing money that you can’t pay back. Even though a high-interest loan or second mortgage may seem like acceptable options to free up additional funds, they may put you at great financial risk.
Select The Right Savings Option For You
529 Plans are a popular way for parents to save for their children’s college expenses. They offer several investment options that will help your contributions grow over time, and your withdrawals for qualified expenses are tax-free. Funds can be used for college, K-12, and student loan repayment with some restrictions.
Another popular investment option is a Coverdell Education Savings Account (ESA). Coverdell plans are similar to 529s with a few key differences. There are income restrictions and if eligible, contributions are typically capped at $2,000 per child until they’re 18 years of age. Additionally, you can self-direct investments by selecting from a menu of options.
The bottom line is you should choose the savings option that’s right for you – soon. The faster you begin saving, the less financial stress your family and child will have when heading off to school.