Saving for your child’s college education is a daunting task, to say the least. The thought of coming up with somewhere between $20,000 and $100,000 to pay for undergraduate studies, even with nearly twenty years to complete the task, may seem impossible, especially if you’re living on a tight budget as it is. And yet, you want to give your child the best opportunity for success and a comfortable life. So it’s not a question of “if” you should start saving, but “when” and “how much”. Here are a few tips to help you out when you opt to begin planning for your child’s future education.
- Contribute what you can. You might not think that you have any money to put into a college savings plan when you’re struggling to put food on the table and keep a roof over your family’s heads. But everyone can find ten bucks a week to sock away (skip a trip to Starbucks or switch to generic cereal, for example – your child’s education is worth it). That $10 will soon be $40 a month and then $480 a year, and so on, plus interest. It might not seem like much, but one year of saving now will cover a semester worth of books. And a few years of this savings plan could buy a semester at a state school. Every little bit helps, and likely you can contribute more over time and find ways to make your money grow so that you have a fair chunk of change by the time your child goes off to the Ivory Tower.
- Consider future costs. The problem with starting to save for your child’s college education now is that costs are bound to go up in the next couple of decades. So you need to add inflation and try to calculate what costs might be by the time your child is ready to attend school. Although you may be limited in what you can contribute to a college fund, you cannot go wrong by over-estimating anticipated costs.
- 529 plan. This is a savings plan specifically designed for parents looking to save money for a child’s future education. Unfortunately, you cannot deduct the amount you contribute annually, and any funds you put in come from your taxable income. But any growth in your savings is considered tax-deferred, which is to say you will not pay taxes annually on the interest you earn on this account. And any money you pull from the account specifically for the purposes of paying for your child’s college expenses is considered tax-free money. Only if you withdraw funds for other purposes will you have to pay the deferred taxes.
- Plan for scholarship dollars. In most cases, scholarships have to be earned by the student. But that doesn’t mean you can’t help your student to apply for a variety of scholarships. For example, he can work hard, earn solid grades, and use prowess in academics, sports, or extracurricular activities to try to earn college scholarships. Or you can hire help to prepare him for the PSAT test since the upper echelon of test-takers is eligible for the National Merit Scholarship (which could cover a decent chunk of tuition at a school of choice). And of course, you should look for scholarship opportunities that your child is eligible for due to heritage, special skills, or interests, just for example.
- Start ASAP. You’ve probably heard that it’s never too late to start saving for your child’s future. But let’s just agree that starting to save when your child is born and contributing regularly throughout his life is a lot better than realizing when he’s 16 that college is fast approaching and you need to start socking money away. If you want to take advantage of interest-bearing accounts, time is your best ally for accumulating funds. The same goes for investments. And whether your child opts to go Ivy League or a degree offered is more his speed, having the money set aside for higher education well in advance will give everyone involved peace of mind.