The cost of college tuition is growing every year. For those with young children, figuring out how to pay for it may seem like something you don’t have to worry about for several years. There are ways to start saving now, however, that can help make sending your child to college less intimidating.
Parents want their children to have the best options available when it comes to education, unfortunately, that can carry a hefty price tag. Planning ahead and utilizing a savings strategy early in a child’s life can make paying for college less stressful.
According to the College Board, the cost of college tuition, fees, and room and board has increased steadily, averaging a 3.2 percent increase per year. The average cost during the 2017-18 school year was $25,290 at an in-state public college and $50,900 at a private college. At the average percentage increase, a four-year education at an in-state public college, could cost nearly $150,000.
Thanks to scholarships, grants and other financial aid, you may not have to pay the full price described above. But, even with aid, an education does not come cheap. The sooner you start saving, the more your contributions can grow over time when placed in different plans. Each one provides unique benefits, so choosing one that best fits your needs can mean less stress for you when it comes to future education plans.
- 529 plans
One of the most popular college-saving methods, 529 plans are state-sponsored programs that are normally managed by a financial services firm. Distributions are free from federal tax when used for education purposes. - Coverdell Education Savings Accounts (CESA)
Similar to 529 plans, CESA’s offer tax-free distributions when used for educational purposes, but CESA’s can also apply to elementary and secondary education expenses as well. CESA’s are limited to couples with adjusted gross income of less than $220,000 ($110,000 for individuals). - Custodial Accounts
Under the Uniform Gifts to Minors Act and the Uniform Transfers to Minors Act, a parent and guardian can put money in a trust and manage that account as trustee until the child turns 21. - Roth IRAs
The owner of a Roth IRA account is allowed to make withdrawals from the account before turning 59½ without being charged a penalty if the funds are to be used for higher education. But be cautious when using this option, as it will impact your long-term retirement savings.
There may be loan programs available to you as well, but be sure to fully understand the loan terms, including interest that will be due – and be careful not to take out more debt than you can afford to pay back.
Whether the child in your life is 13 years old, 10 months old, or due any day, it’s never too soon to start planning. Contact us, stop by any one of our locations, or call (800) 599-7551 to talk to a professional today. We have the experience you need to get started or improve your college savings plan.