It’s always good to have something ready for your kid’s education. But if you haven’t started saving, how can you start or make up for lost time? Here are six ways to help secure your kid with a comfortable sum for their college career.
Keep Priorities in Place
You’re probably excited to start funding your kid’s future. Still, there are so many other things you should be throwing your money at before you even think about setting aside money for college.
Prioritize having an emergency fund and paying off all debt before you put a cent in the college fund. It sounds harsh, but you have to take care of yourself first. Otherwise, you can’t take care of anyone else.
Start a 529 Plan
If you haven’t heard of them, 529 plans are easily one of the more popular ways to set your kids up for success with a college fund. These savings accounts are sponsored by state governments, and most states will let you deduct whatever you add from your taxes.
Plus, you won’t be taxed when you withdraw money, so there’s added flexibility that way. And you don’t need a lot of money to open one either!
Start a Custodial Account
Custodial accounts usually come in two forms: UGMAs (Uniform Gift to Minors Act) and UTMAs (Uniform Transfers to Minors Act). They’re similar, but UTMAs also have the added benefit of including physical assets.
Fair warning — these accounts require you to trust that your child will use it for its intended purpose since they have free rein over it when they turn 18.
Buy Savings Bonds
Another way to save is through buying savings bonds through the U.S. Treasury. You can’t get them as paper certificates anymore, but they’re just as valuable. And as long as they’re used for higher education expenses (not including room and board), you don’t have to claim them as income on your gross income for tax season.
Savings bonds are excellent because they’re low risk since they’re guaranteed by the government. However, bonds won’t gain much in terms of interest over time.
Try Investing in Mutual Funds
On the opposite end of the risk spectrum is investing in mutual funds. It’s another limitless option, but there’s no guarantee your money will be unscathed. You’ll also be subject to capital gains tax whenever you sell the shares. Mutual fund assets can also affect a student’s eligibility for financial aid. But since the ceiling for earning is higher, it could be worth it.
Don’t Worry About How Much You’re Saving
Putting the methods aside, many people don’t start a college fund because they think $20 amounts to nothing. But if you start early enough, your pre-emptive savings could take an extreme future financial burden off your family.
For example, if your kid goes to college at 18 and you save $50 a month starting when they’re 8, which most would consider later than average, that’s still $6,000 that can go to their education. It’s certainly nothing to sneeze at!
