It’s fair to say that one of the most daunting tasks a parent is burdened with is the prospect of paying for their child’s higher education. Concerns about finances already cloud our day-to-day lives, so setting aside a giant chunk of money to pay a future college tuition fee makes many parents anxious. With most people going through the same thing, there are several programs and procedures in place to help speak to parental concerns about saving for college.
Open a 529 account.
One way to ensure you’ll be able to pay for your child’s college is to open a 529 savings account. Created by an act of the Internal Revenue Code two decades ago, 529 plans are straightforward and relatively painless. 529 savings plans are like a piggy bank; you’ll deposit funds at various points in time and you won’t open the account to withdraw your money until the time comes to pay for college. Some 529 plans can be opened with only $25.
529 plans are handled at state levels, and the accounts have hard caps when a certain financial milestone is passed, meaning you cannot deposit as much as you want. The limit of a 529 plan is usually around $200-$300,000. While handled at the local level, 529 accounts do not, in most cases, bind where you can send your child to college. This means that, for example, if you live in North Dakota, you can open a 529 account in your home state and still send your child to school in Massachusetts.
What else can you do with a 529 account?
Once you decide to open a 529 account, you’ll notice that your options fork. You have the choice to open a savings account, as described above, or a prepaid plan. Prepaid plans, simply put, allow you to pay for your child’s future tuition by putting your money in a sealed account, instead of depositing as you go. If a savings plan is a piggy bank, this is a time capsule. The drawbacks to prepaid plans are obvious; you are bound to tuition rates at the time of your deposit even though they may go down in the future, and you have to come up with all the money at once. However, they can also offer greater financial security and the relief of sealing your child’s future at one point in time.
Other ways to save for higher education
Of course, it’s not necessary to open a 529 plan (either prepaid or savings) to pay for your child’s tuition. Several parents choose to open a simple savings account at their preferred financial institution, where they can keep a watchful eye over their money without getting involved with 529 plans. The important thing, though, is to have a plan, instead of letting college tuition creep up on you and your child.
Some parents choose to hire a financial advisor to walk them through the more complex aspects of setting up college tuition savings plans. It should be noted, before you go down this route, that there’s a lot of information available online regarding the same subject. These advisors help by taking complicated terms and clauses and explaining how they best fit your family’s agenda. There are a ton of different routes to take when it comes to saving for college tuition, but as long as you explore all your options and decide what’s best for you and your child, it’s much easier than it’s made out to be.
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