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How to save for college?
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A college education is one of the best things you can give your child for their future. Studies show a person’s earning power increases with each degree they receive. Rewarding, yes. Affordable, not exactly. Today, a college education can cost tens of thousands of dollars. And it’s on the rise. According to the College Board, a first-grader today will need close to $80,000 to attend a public, in-state university. Attending a private college will more than double that amount.¹ So how do you prepare for their future? You plan today.
The earlier the better.
Giving yourself a head start in saving for your child’s college education means your money will have more time to grow. And more time for your investments to weather any market ups and downs. Even the government is stepping in to help. New savings options are now being offered at both the federal and state levels—some with tax benefits for you—to put that future college diploma within reach. They include:
- Coverdell Education Savings Account—The Coverdell Education Savings Account lets you deposit up to $2,000 per child, if eligible, and offers tax-free growth with savings restricted to college education expenses.
- Custodial Account (UGMA/UTMA)—An account can be established for a child under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). The UGMA/UTMA account allows someone to make gifts to a minor without setting up a trust. One thing to consider: transfers made to an account of this type are considered an irrevocable gift to the minor in whose name the account is registered and the assets are available to the minor once they reach the age of maturity.
- 529 Savings Plan—Named for the section of the Internal Revenue Code that describes it, a 529 Savings Plan lets you invest after-tax dollars and offers tax-deferred growth and tax-free withdrawals for payment of higher education expenses.
It’s never too late.
Like we said, generally speaking, the earlier you start saving for your child’s college education, the better. But that doesn’t mean that if your child is 10 you should just give up. It’s never too late to start planning. And if you’re a proud grandparent, aunt or godparent, you might want to think about making a gift to an account established on the child’s behalf.