While you might not know for a fact whether your child will go to college, it’s a good idea to save up for the possibility. What’s more is you want to make sure you save money for college the right way with the right information, just like you want to consult with the right financial experts for more info on how to improve your finances the right way.
The Roth IRA
Roth IRAs are good for more than just retirement savings, they’re a good way to save up for college as well. When used for higher education instead of retirement, you can withdraw funds penalty- and tax-free as long as the money is used for qualifying education expenses after a certain number of years. Bear in mind that IRAs come with contribution limits, so know what they are before you sign up for a plan. Another great thing about using an IRA as a college-savings account is that you can use the money for retirement if your child doesn’t go to college.
529 College Plans
529 college plans work much in the same way as Roth IRA plans. These accounts work off investments, and your gains are tax-deferred. When you use the proceeds for qualifying tuition expenses, you don’t have to pay taxes on withdrawals. Know that using a 529 plan is linked to a qualifying college, so make sure your child attends one of those qualifying institutions. Much like you can shift the use of a Roth IRA if your child doesn’t go to college, the same can be done with 529 plans. For instance, you may want to change the name of the account beneficiary if you want to help someone else gain a college education.
Prepaid Tuition Plans
If your child is sure she or he is going to attend an in-state public college, you can both benefit from a prepaid tuition plan. There’s no telling whether the cost of tuition will increase by the time your child is ready to go off to college, but prepaid tuition plans allow you to lock in the current tuition cost no matter how the stock market or price of tuition might fluctuate over time. Even if you lock in a price for a single year of tuition rates and make a contribution of only 50 percent of that price, you’ll still cover 50 percent of a year’s worth of tuition even if the cost increases. Should your child later decide to go to an out-of-state school, that tuition plan is still good, albeit for a smaller return.
In addition to the above account options, there are a few more general tips you can put to good use no matter how you plan on saving for the cost of college. First of all, make sure you account for your own financial situation while you decide how to afford your son or daughter’s college education. Starting to save for college as early as possible is also a good idea, one that makes things much easier on you and your finances as time goes by. You should also consider automating your savings so you don’t have to worry about forgetting to make contributions. It’s also in yours and your child’s best interest if you don’t put the college-savings plan in her or his name. This is because she or he can lose out on financial aid if she or he has a lot of money in savings, such as more than $3,000.
College is no guarantee for anyone, but it’s best to start putting back now rather than later. No matter what happens, you’re sure to find a good use for the money you save.