We all have big dreams for our children. We want them to be happy, prosperous, and have everything they need.
College is an excellent vehicle for achieving this as it opens doors to new job opportunities, higher earning potential, and personal development. However, not everyone attends college. It's not always for lack of interest, but sometimes, it's for lack of money.
As a parent, there are ways you can start saving for your kid's college education. Here are three ways to start putting money into a college savings plan.
1. Open a 529 Plan
A 529 plan is an investment account that offers tax benefits as long as the money goes towards paying for education expenses. You're limited by what you can do with this money, and it could involve penalties if used for non-educational expenses. However, a 529 plan offers an easy way to stay on track and use the money saved specifically for your child's education.
These plans offer a huge tax advantage, and they don't impact financial aid eligibility. They're also tax-free when the money supports the designated beneficiary's education. Qualifying educational expenses include the following:
-
- College
-
- K-12 tuition
-
- Student loan repayments
-
- Apprenticeship programs
Note that 529 plans are not deductible. Therefore, you don't have to report them on your annual tax returns. Get in touch with a quality tax accountant like MiTaxCPA to learn more about 529 plans.
2. Consider a Roth IRA
A Roth IRA fund is a common type of savings for college. Traditionally, they fund retirement; however, using this money for college is considered untaxed income for the beneficiary.
IRAs are not as strict as 529 plans. You can use the money for multiple reasons. Lenders will waive any early withdrawal penalties when the funds go toward higher education expenses like college.
Like a 529 plan, you should speak with a tax accountant or financial adviser to ensure you use the funds appropriately. Otherwise, you could face implications.
3. Take Advantage of Grants and Scholarships
Along with saving your hard-earned money, you should rely on grants and scholarships to ease the financial burden of sending your child off to college.
There are several types of grants to consider, like the Federal Pell Grant. They are typically issued by the government and awarded to those in financial need. Like grants, scholarships are considered gifts and do not require repayment.
Eligibility requirements for scholarships vary. Some are awarded based on need, while others support those with the highest GPA. For others, your child must be a part of an organization or be studying a specific field.
Nonetheless, these gifts can't be missed out on, so guide your child through the application process when applying for grants or scholarships.
Final Thoughts
A 4-year degree at an in-state public college costs an average of $42,240. If your child wants to attend an out-of-state university, the average cost is $108,080. It is a lot of money to put aside; however, 529 plans, IRAs, grants, and scholarships, are a great place to start.
What are you waiting for? Start putting money away to fund your child's college savings plan today!