Saving for college is one of the best ways you can help successfully set your child up for the future. The sooner you can start saving, the better! Here are our top three tips on how to save for college.
It’s never too late to start saving for college funds. However, the sooner you start saving the more time your money has to grow and the more money you’ll have available for your child’s education.
You’ll have more options for different types of savings plans if you start early as well. Still, don’t worry if you didn’t start saving early as there are still options available to you to help pay for college.
Decide Your Savings Goal
Your savings goal for your child’s college fund could change based on a few factors. Are you planning to save for 100% of college expenses or only 50%? Are you saving for your child to attend public or private college? Will you stop contributing when your child turns 18 or will you contribute throughout all 4 years of college?
Based on the answers to these questions, you could be saving about $100 a month on the low-end or about $500 a month on the high-end. It’s important to figure out your savings goal and desired monthly contributions first as it might have an impact on what savings plan you choose.
Find the Best Savings Plan for You
There are a lot of different savings plans available to help you start saving for college funds such as 529 plans, savings bonds, Roth IRAs, and taking out a home equity loan. Each plan will get you to your savings goal, but one might fit your life a little bit better.
A 529 plan is a savings plan usually sponsored by state governments. One pro of this approach is that you are able to deduct your contributions from your state income tax. Then when it comes time to withdraw money for college, the money won’t be taxed.
Savings bonds are another good option for saving for college as they’re backed by the government and a low-risk investment. However, the interest you’ll earn on your savings is generally low. This is a good option for someone who’s starting to save early and wants a steady plan.
Roth IRAs are typically thought of just being for retirement, but they don’t have to be. Similar to a 529 plan, you pay taxes on your contributions to your account and will withdraw money tax-free. Another appealing part of using a Roth IRA is that if your child decides not to attend college, you still can use the funds for retirement.
Finally, taking out a home equity loan is another option for covering college expenses. The equity from your family home could be your largest asset and could be useful in this case. Although it is a loan you’ll have to pay back, this is an option for parents who don’t have much time left to save and need a way to pay for college.