Parenting is a joy as well as responsibility.
As a parent, you have to take care of every of your child’s needs.
You have to make sure that your children achieve what they desire or aim in their life.
Although there are various challenges in nurturing up children, but the biggest challenge comes in the form of sending them to a good college.
I call it a challenge because sending your child to a college involves a large expense.
It can be regarded as biggest expense of your life.
If you do not begin soon, you may well find that you are short of funds. As a parent, you do not feel good to refuse your children for college education just because you do not have enough funds. This would be a pathetic situation for you.
So what you want is an enough college fund with you so that your children can pursue their college education. In order to have the required college fund, you must begin saving for it. Rather you should know .
Just look at the figures below, it will give you some idea of how much you require saving for a college fund.
The average yearly cost of a private college in USA stood at $43,289 for the academic year 2012-13. Whereas, the average yearly cost of in-state public college in USA stood at $22,261 for the academic year 2012-13.
Now, see the estimated cost of college education in the year 2030.
It has been estimated that the average yearly cost in USA of a private college in the year 2030 would be $130, 428 and that of a state college would be $41,228.
So you see that college education is highly expensive, and the trends are such that it will remain expensive in the years to come.
As a responsible parent, you have to begin saving for your child’s college education as soon as possible. The early you start saving the more college funds you have at your disposal. In addition to this, you have to follow a good saving strategy so that you have the required money for your child’s college education.
Here under, I have listed various options that you can adopt to save and build college fund for your child’s higher education.
By far the easiest way to build up a college fund is to deposit money in a savings account. A savings account is easy to operate. You can do regular deposits in your savings account and build up college fund. You can even choose to open separate savings account exclusively for college funds. Fix up a monthly saving target for your college fund that you would deposit in your savings account. You need to be disciplined so that you do not use the funds in your savings account kept for your child’s college education. Although the interest you earn in your savings account is less, still your money will appreciate and more importantly is safe with a bank.
Savings Bond is another great way to save and build up a college fund. Savings bonds usually earn more interest than savings account. They are considered as a safe investment option for a long term period. However, unlike savings accounts where you do regular deposits in a savings bond you make a lump sum payment and hold them for a period of ten to twenty years. Savings Bonds issued by U.S. Treasury give assured returns and so have a low risk of investment.
Investments in Stock Market
Investments in Stock Market Instruments are another viable choice for building a college fund. You can invest in individual stocks of companies or you can choose to invest in mutual funds. Investments in stock markets are considered risky as the returns are dependent on market performance. If the market dips, you end up losing your money, and if the market is performing well, you stand to gain. Profits or returns from the stock market instruments (when the market is performing well) are much higher than savings accounts or saving bonds. So if you are willing to take some risks then go for investing in stock markets. Profits and dividends on the stock market instruments are taxable.
529 Plans are state sponsored savings plan which enable you to save money for college tax-free. Their names are derived from Section 529 of the Internal Revenue Code and are usually state sponsored or sponsored by educational institutions. 529 Plans are basically of two types such as pre-paid tuition plans and college savings plan. Pre-Paid Tuition Plans work by locking in the cost of tuition and fees at today’s prices. Whereas in college savings plans, you can save your money in professionally managed investment account.
Each state has its own set of rules for 529 Plans. So that you get different tax treatment on the amount of investment. The money you save in 529 Plans must be used only for college expenses else a penalty is levied. As the value of 529 Plans depends upon the performance of markets and economies, so they do carry an element of risk.
Custodial accounts are taken in a child’s name and are recognized as child’s assets. Custodial accounts are especially beneficial for those parents whose children are not eligible for any type of financial aid. Children can spend the money in their custodial accounts on any purpose, college fees or otherwise. Contributions are irrevocable and moreover, contributions above $14000 attract federal gift tax. Earnings on custodial accounts are subjected to federal income and capital gain tax.
Using Coverdell Accounts you can save money for your child’s education tax free. Although the contributions are not subjected to federal tax deductions, but withdrawals are tax free if used for educational purposes. In Coverdell Accounts, you can contribute upto $2000 a year. Also, parents who earn more than $110,000 cannot have Coverdell Accounts. Coverdell Accounts should be started before your child turns 18 and should be spent before they are of 30 years. You can use Coverdell accounts for all levels of education. Moreover, in Coverdell accounts you have the option of investing in bonds, stocks, ETFs, and mutual funds.
Life Insurance policy is another viable option to save money for your child’s higher education. You can take a life insurance policy and save regularly by paying the premiums. Some life insurance policies also provide the option of taking out a loan. Most Life Insurance policies are risk free and provide assured returns if you do not invest your money in stocks or money market instruments. On account of death of the policy holder, the beneficiary is paid the sum assured. On maturity, you get total fund value. You can also make partial withdrawals when you need cash to fund your child’s college education.
So you see that you have many options available with you to save for your child’s college education. It’s just a matter of starting savings and accumulating money for your child’s higher education. The longer period you have for building college fund for your child, the easier for you to accumulate money to finance your child’s higher education. You have to realize that without saving you cannot build a college fund. So you should start building college fund as soon as possible.