Ever since kids have been going to college, parents have been coming up with ways to prepare to pay for it. However, with studies reflecting the fact that if you have a newborn today, the price of a four-year degree (from a non-Ivy League school) will be well over $200,000, now more than ever, plans have to be made well in advance.
When it comes to figuring out how much money you should save for your child’s college fund, it honestly depends on when and where you and your child decide to go. Financial planning experts in the field predict that the average annual inflation as it directly relates to tuition costs is somewhere around 6%. So, for instance, if an incoming freshman is paying somewhere around $75,000 for a four-year degree in 2012 (and that’s about right, actually), divide that by four to calculate how much it costs to attend school each year. Then multiply that times 6% to get an idea of how much tuition increases annually.
Yes, that is a lot of money. But if you’re reading this, the good news is that you’ve come to an article that can provide you with some helpful tips on how to pay for it. Here are three ways to save money for your child’s college fund so that when the time comes, you’re ready.
Start up a 529 college savings plan. If you’re not familiar with what this is, the name was inspired by Section 529 of the Internal Revenue Code. These college savings plans have been set up under both federal and state regulations and virtually each state is a participant. All you have to do is fill out an enrollment form. Upon approval, you can start making tax-free deposits that you don’t have to fill out 1099 forms on until the first withdrawal is made. Another bonus is that you don’t have to worry about managing it. Your state’s treasurer’s office or an investment company that they contract out will handle it for you.
There are investment options too. If you have children who have expressed an interest in having social work degrees, psychology degrees or anything that may indicate that they will be going to graduate school as well, you need to have even more money than what is required for undergrad. Your 401K is one type of investment option that you can withdraw from for their education when the time comes (especially if you are the older parent of a younger child). Plus, being that those monies are not specified as “educational expenses”, should you, at some point, discover that they are needed for something else, you can utilize them in this fashion without penalty.
Try Upromise. As an extension of Sallie Mae, Upromise helps people to save money for college by making purchases from items that are directly affiliated with this effort. There are grocery stores, gas stations and online retail shops that are listed as active participants and the monies earned can go to a 529 plan or a personal savings account. For more information, go to Upromise.com.
