Every parent wants their child to have a bright future. These days that means working to save money for your child to get a college education. Statistics show that adults who didn’t graduate from college make less money on average.
Of course, college is also a learning experience that’s about more than just getting a job that will pay the bills when you get out. For many young adults it’s a rite of passage where they learn to take care of themselves and assert their independence.
If you’re worried about paying for your child’s college education you’re not alone. Use these tips to help you save the right way.
Enroll in a 529 Plan
529 plans are commonly referred to as college plans because they’re set up to help parents save money for their child’s education. While most 529 plans have annual fees, they offer several benefits that you won’t get if you simply put money in a savings account.
The most important benefit for parents looking to save money is the fact that earnings aren’t subject to federal tax. That means that you’ll keep more of that money you want to put aside for your kids.
One important thing to know about 529 plans is that they are state-based, so you’ll likely be putting money away in your own state. However, you should do some research since other states besides your own could offer a better plan.
You don’t have to live in the state where you buy the plan either, so doing your homework might help you save more money in the long run.
Consider a Roth IRA
A Roth IRA is a type of savings plan that isn’t exclusively for college use, and many people use them to put money aside for retirement. Just like with a 529 plan, you’ll get the benefit of investing after-tax money and being able to withdrawal any investment gains you earn before you reach 60.
You’ll also be able to withdrawal money out of a Roth IRA after five years if you’re going to be paying for educational expenses without incurring any sort of penalty. That’s what makes a Roth IRA such a powerful savings tool for parents looking to put money aside for their kid’s tuition.However, a Roth IRA may not be sufficient for all of your child’s expenses, especially if they’re going to be going off to school soon. Contribution limits are capped at $5,500 per year if you’re under the age of 50. Adults over 50 can contribute just $6,500 per year.
You should also know that some people won’t quality for a Roth IRA because of income limits. Single taxpayers making more than $129,000 or married couples making more than $191,000 won’t be eligible for a Roth IRA.
Put Money Aside
One of the easiest ways to save money for your child’s education is to simply take a portion of each paycheck and put it into a 529 plan or a savings account designed for college. Even if you only take one or two percent of your check and put it aside it can add up to a lot of money.
If this method of saving appeals to you, make sure you start when you’re children are young. College tuition is expensive and you will want to make a plan that is best suited for the financial security of your family.