When To Start Saving For Your Child’s College Education

Save money for your college tuition fee

Flickr user Nathan Richardson

Many new parents often wonder when the best time is to start saving for their child’s college education. Every family has different finances, but the general rule is as soon as possible! No matter what your unique needs are, here are some tips to make sure you have access to funds for college tuition when your child turns 18.

How (And When) To Start Saving for Child’s College

As Soon as Possible

It’s generally good advice to start saving for your child’s future education as soon as you’re able. Some go-getters even start saving before their children are born. In the past 2 decades, tuition and other college expenses have risen by over 50% AFTER adjusting for inflation. Saving now (even if your child is young) is crucial as fees will continue to increase over the next 20 years.

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Prioritize and Balance

It may not be possible to start saving that early – and that’s OK. You have many needs to fill for your family, with a college education being just one. It’s important to balance your other expenses and your family’s needs, such as buying a house or keeping an emergency fund. Create a budget, prioritize, and plan — but try not to neglect any one savings account. As with any long-term goal, building a habit of saving is the most important. So, save a little bit each month and it will soon add up.

Start With the Baby Shower

As with many savings and investment goals, the best time to start was yesterday. The second best time to start is today. But an upcoming baby shower (or child’s birthday) is a golden opportunity for you as a parent. If you’re gifted checks, cash, or bonds at the baby shower, birthdays, religious events, or other milestones, put them straight into the college savings fund. Help your child invest in their future and teach them the importance of saving early.

Remember Retirement

Timing is everything. Chances are your children will be heading to college just as you’re nearing retirement. This can potentially pose an issue of needing to save quickly for 2 monumental life changes. But you have choices. If you have not saved for either college or retirement and you’re staring down both soon, then it is important to consider your priorities.

You can continue to work and earn a higher wage than social security can offer and help pay for tuition for your student. You can help your child by securing other forms of financial aid such as a student loan. Or you can look into ways to save on your child’s tuition fees such as using high school and community college credits to transfer to a university.

Similar to saving for college, the earlier you can start saving for retirement, the more financially secure you and your family will be. Set a monthly budget for your family including these goals and start saving (and investing in your child’s future) today.

Choosing The Right College Savings Plan

There are quite a few options when it comes time to save for your child’s college fund.

1. Savings Account

You can choose to a regular savings account as they are easy to use, just be sure to set it up in your child’s name. It is important to keep in mind that if you apply for financial aid, the savings account could affect your child’s eligibility for aid. Those assessing financial aid requirements deem that a student will use more of his or her savings to help pay for college than a parent will use theirs. This is simply one consideration in your college payment plan.

2. 529 Savings Plan

A 529 savings account is another choice you may want to consider taking advantage of. If you set it up before your child is born, you can transfer it to their name as a beneficiary, or you can set up a 529 plan upon birth or any time before they turn 18. It can also provide tax benefits.

3. Coverdell Education Savings Account (ESA)

Coverdell ESA’s are similar to 529 plans. They offer tax-free growth and withdrawals for educational expenses. However, contributions are limited to $2,000 per year per child. There are limitations, so research whether a Coverdell ESA is right for you.

4. Traditional or Educational IRA

Another route parents go is an IRA, generally for the higher interest rates than the 529 or standard savings accounts can provide.

5. UTMA or UGMA Accounts

If you are interested in directly controlling how your savings account is invested, then the Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) accounts may be right for your family. They allow parents to invest money on behalf of their children. The funds in these accounts belong to the child but are controlled by the parent or custodian until the child reaches 18 years old.

Yes, it’s best to start saving for your child’s college education as early as possible. However, you should always keep your family’s financial situation, potential life changes, and family priorities in mind. Every parent’s finances will be different, so find what works for you and your family. Start learning, saving, and teaching your children as soon as you’re able.

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