This is especially true with college as tuition rates continue to rise, amounting to 300% more since 1990, as well as an economy that seems to fluctuate under the slightest bit of pressure.
College, of course, is much more than just going to class. It is often about purchasing books, supplies, room and board, food and other activities. And more these days than not, college is also about post-graduate work, which can cost tens of thousands more.
So how can someone start to save for their child’s college fund? There are also many ways to save as well as financial institutions to get a parent well on their way to putting their child in college. The idea is to not over extend one’s self toward saving for college, yet luckily institutions such as National Debt Relief are available to assist those in time of financial hardship.
Saving For College? Don’t Bank On It
According to a bankrate.com article, opening up a savings account for a child with the specific purpose of using it toward that child’s college education is not the best idea simply because the money saved could in fact go against a child’s ability to go to college.
This can be particularly true with financial aid, as the more a child has in their bank account, the less likely they are to receive assistance from resources such as the government or even a school itself. This comes from the fact that financial aid is based on income and assets, which in most cases range from the year prior when a child is applying for assistance. Simply put, students with large amounts of savings could lose more than their share toward tuition breaks.
All Aboard The 529
The 529 college plan works in a similar fashion to an IRA or 401K, though the 529 plan is geared specifically toward college use. Once set up for their child, parents can contribute to the plan tax free, utilizing a vast list of options that measure in aggression from when the child is young, then can taper off as the child comes close to college age.
As these plans offer major tax advantages, Craig Parkin, director of institutional client services for TIAA-CREF Tuition Financing, states:
"The gains on the accounts are tax-deferred, and once the funds are used to pay for qualified tuition expenses, parents will never pay taxes on those funds.”
The money from these plans can be used at any two or four-year accredited college, whether for an undergraduate or graduate degree. And while this money is available for the child’s education, because the account owner is still the parent, that means the child won’t be realized as having assets and for that, penalized when attempting to obtain student loans.
Using Stocks For College
As simple as it seems, stocks can be a very effective way to save for a child’s college education. In fact, the earlier and more aggressive a portfolio is begun, the more likely the child will have all they need to make it through their four or more years of school without worry. It is also possible for a parent to shelter their returns as their child approaches college age, by transferring their stock investments to bonds or cash.
Roth IRA
Another way in which a parent can prepare themselves for the cost of their child’s college education is by setting up a Roth IRA. The caveat, however, is that the child can’t spend their entire time only studying. To benefit from a Roth IRA, the child has to actively be working.
Yet once a child does have a job, they can benefit from a Roth IRA for college purposes and without a 10 percent penalty that other funds can fall victim to when the money is withdrawn.
Find and Ask A Financial Planner
Other plans either exist, or might come into form between now and when a child journeys upon their college dreams. To that point, it is very important to obtain a financial advisor as soon as possible in order to find the right financial plan for a child’s college years. It’s never too early to start.
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