Parents are the in-charge of their child’s wellbeing. Having a child is a blessing. This blessing comes with a whole bunch of responsibilities. Parents love the sincerest in the world. They always want their children to be the best version of themselves. They strive to provide every luxury to their kids. Like every other necessity, education is also a necessity of today’s world. Every parent knows that education is the key to a better tomorrow for their child. But nowadays, education has become costly. Therefore, earning less and spending more is never a wise choice. It’s always a better decision to save for tomorrow. The escalating tuition fees of college education have worried the parents and the students. It has become almost unbearable for an average-income household to balance their household finances with the college fee. Just like utility bills, parents must keep a little money on the side for their children’s education. Thus, most wise parents adopt a saving policy to tackle this hurdle in the way of their kid’s education.
The Best Time To Start Saving For Kids Education
It is always best to start saving early. This will give more time for your savings to accumulate. The college and university fee has increased drastically in the recent years. Those who have a child or are planning to have one must keep their child’s future in mind. Most parents consider saving one-third of the college/university tuition fee before their child reaches that age. It’s a beautiful gift to keep your child from enormous student debt by saving a little money each month. The cost of In-state university and out-of-state university education is variable.
You can adopt several ways to lessen the burden of your kid’s college education from your shoulders. Prepaid tuition plans, 529 saving plans, and government education saving accounts are the best ways to adopt to save for your child’s education. Another clever way is insurance premium financing.
- 529 Plans
These plans have been around for quite a long time, but most Americans do not know that they exist. These are called the “Qualified Tuition Plans. These are government-sponsored programs that financially aid students in pursuing higher education. Parents may take advantage of tax deductions while saving for the educational expenses of their children. This will reduce their income amount that is liable to tax deduction. These are of two types:
- Educational Saving Plans:
These are state-sponsored plans in which parents or guardians can open an investment account so that their child can use that money, later on, to pay for college, university, dorms, and other numerous study expenses. Parents themselves can use up to $10,000 to pay for schooling expenses. Beneficiaries can use these savings for education costs only. Otherwise, a 10% tax penalty is applicable on any non-educational withdrawal. You can get rid of your monthly headache and make your savings automatic. You can automate the transfer of as little as $25 from your bank account to the saving account monthly. You do not have to hassle and spare some time for money transfer every month/year.
- Prepaid Tuition Plans:
Prepaid tuition plans are indeed a blessing in these challenging times. The surging inflation has also stricken the tuition-paying pockets. Students can not afford to pay for higher education due to the unforgiving surge in tuition fee amounts. Fortuitously, prepaid tuition plans exist in some public universities, and parents can pay the college and university tuition at current prices. This opportunity is primarily available for the parents living in the same state as the university.
- Coverdell Education Savings Account
Coverdell Education Saving Accounts are a blessing for parents planning to give their children the gift of education. Still, they are not financially stable enough to cope with the increasing educational costs. Coverdell Saving accounts are primarily for minor children, but the contribution stops when the child reaches age 18. The annual contributions to the beneficiary account are limited to 20,000 per month from each source.
- UGMA and UTMA Accounts
Uniform Gift for Minor Act (UGMA) or Uniform Transfer to Minors Act (UTMA) Accounts have a plus. These are similar to the saving accounts mentioned above, but there is no limit on the amount transferred, and your child can you the savings on anything. Parents/contributors should take cognizance of the fact that these savings are not tax-free. Any withdrawal or contribution return is tax liable.
Although there are multiple benefits of these saving and investment plans, each one comes with some risks. You know that every investment comes with risks. You can’t avoid inflation messing up your saving plans if you do not consider the day-to-day rise in college/university tuitions fee. We suggest you get some help from professional financial advisory services before considering any of these plans. Parents can utilize asset allocation to minimize the risks of investment loss.