Many parents agree that though expensive, saving for their child’s college tuition is a worthwhile investment. With a college education, your child will receive many benefits after graduation such as long-term financial gain, job stability, career satisfaction, and success outside of their career.
Yet, not every parent is aware of how early saving for their child’s future should begin. Putting aside finances for college should start as soon as your child is born or earlier, if possible. If you have started saving later on in your child’s life, you still have options. By taking advantage of an education IRA or depositing money into a secured savings account, you will be able to reduce the amount your child will have to borrow.
Today, we inform you of what you need to know about saving for college to better prepare you for the savings journey.
1. Set a goal
Any savings journey that does not have a goal can fall short of enough funding. Setting specific savings goals will help you stay on track when saving. In fact, individuals who set a savings goal have been known to save faster than those who don’t.
According to the U.S. News, the average public, in-state tuition in 2018 was $9,716. For a public, out-of-state school it was $21,629 and for private schools, it was $35,676. When saving for your child’s education, you must know what savings amount to work toward.
Below we list a few tips when setting a money goal that fits your unique financial objectives:
- Choose a reason to save money: You’ll need a reason to be diligent about putting necessary savings aside. In this case, it will be for your child’s college tuition.
- Create a timeline to reach your goal: Following a timeline to meet your goal gives you the structure you need to stay consistent with saving.
- Set monthly savings goals to meet your timeline: With your total amount in mind, select comfortable amounts each month to put toward reaching that goal. Opening a savings account will help you accrue interest on your savings.
2. Choose a savings plan that works for you
You may have other accounts that you could borrow from to pay for college such as a 401(k). However, there are other options available that you can consider before tapping into your 401(k) account.
When selecting a plan that is right for you, you may want to look into an education IRA. Also referred to as a Coverdell Savings Account, an education IRA assists both parents and guardians when financially preparing for their child’s education. The account allows up to $2,000 per year in after-tax contributions to be made under the beneficiary’s name. The education IRA funds are intended to be used for future educational expenses. These include tuition, books, and uniforms at the elementary, secondary and higher educational levels.
3. Take advantage of tax breaks
If you’ve decided to pursue a college savings fund such as an education IRA, you’re in luck. These contributions grow tax-deferred and may be withdrawn tax-free for qualified educational expenses. If the money is not used by the time the beneficiary reaches 30, the remaining funds must be distributed unless the beneficiary is a special needs beneficiary. Certain transfers to members of the beneficiary’s family are permitted. Consult with your local tax advisor for more information on education IRAs and tax breaks.
4. Continue to save during college
Your child’s tuition may be the biggest expense when sending them to college, but it isn’t the only one. Factor in living expenses, books, food, or even a new computer and you’ll require a decent amount of money to cover these costs. With this in mind, it’s important to save even while your child is going to college. After graduation, your bright student may want to pursue graduate school. If this is the case, having some extra funding set aside will be of great service.
5. Ask for assistance
It’s not only you who wants to see your child succeed—their loved ones do, too! Asking for financial assistance can make all of the difference when tackling the many costs associated with attending college. Family members and friends are often willing to contribute. Even if the amounts given are small, they still help. Big occasions such as a birthday, holiday, or graduation can be perfect opportunities to ask for financial support. You never know—you may end up with more than you’ve anticipated.
Your child’s future education starts with a savings account
Big moments can happen from small decision making. Start simple by opening a savings account with Prudential Bank to secure a successful financial future for your child’s education, today.