Monday, December 15, 2014
College Funds are they the Right Thing to do?
Receiving a degree from an accredited university or college is an important stepping stone for many careers, but many parents are unsure of their role when it comes to finances. Even a basic degree can become a relatively large strain on a family’s savings, and this is why many would like to get an early start on a college saving plan. For those that are unsure if this is the right choice for their own situation, here is a look at how to start a college fund and what options there are out there for assistance.
The Rising Costs of College
Tuition for a higher education is a major cost for anyone and it is often tough to predict exactly how much a family is going to need. Some students may receive scholarships or stay within the state to go to school while others may move off to the opposite end of the country with relatively large living expenses and out-of-state tuition hikes. For parents that currently have children or are planning on having children soon, the best way to estimate future costs is to take a look at current costs and then to add a 2 to 5 percent increase in those costs each year.
Starting Early and Staying Consistent
No matter how much a parent decides to save for a child, it is important to start as early as possible and stay consistent no matter how one’s finances are doing. Many parents may think that starting when their child is only a baby may be overboard, but every year that is added to an investment will result in more “free” money coming from interest rates. Families that cut out one restaurant meal per week or skip on that gourmet coffee could easily save $50 a month, and in 18 years this could completely cover the cost of many schools.
College-Specific Savings Accounts
Once the initial stages of planning are done, it is time to begin taking a look at savings accounts that are specifically geared towards higher education for one’s children. While many companies do offer a number of incentives for tuition savings accounts, there are some federally-backed accounts that can cut costs on taxes. The most common is the 529 college saving plan which is not taxed as long as it is used at an accredited university and has an upward limit of $250,000 or more. ESA and IRA accounts can also be used, but an ESA account is the only other federally-backed savings account that will collect interest but is not taxed when used on a higher education.
For parents that are wondering how to start a college fund or if it is even the right choice for their own family, it is important to begin answering these questions as early as possible. Each and every month that is used to invest wisely could result in thousands of dollars in savings in the future as well as a first-rate education for their child.