Today, the number of children entering college continues to increase each year. Although some parents will choose to help their children with a student loan, most parents want to make sure that they have enough money set aside for their child‘s college education.
Unfortunately, in the US, the pursuit of a college education is not the easiest thing to plan for. Secondary education is expensive, so understandably, parents want to help prepare for their child’s future early.
However, there are several ways to save for your child’s future without having to sacrifice your own retirement. Read on to find out the best way to save for kids college.
Save for Your Retirement Plan First
Perhaps your first thought is to turn to your own traditional savings, such as a 401k. A 401(k) plan is like a traditional retirement account, but instead of contributing money on a monthly basis, you only contribute at certain times throughout the year.
This allows you to save more money in one go. You will be able to make more frequent contributions, which means that the return on your investment will be higher than with a traditional retirement account.
However, you should think twice before you take your retirement money to cover your children’s cost of college tuition. The reality is that there are other resources they can rely on before you have to dip into your individual retirement accounts.
When your child graduates from high school, they might have a wide array of options to pay for college. If your child is an athlete or part of a gifted program, he or she may qualify for scholarships.
There are work-study programs, grants, and even student loans to cover college costs. If your child chooses to study abroad, he or she might go to a university where
students do not pay anything for a college education.
You, on the other hand, do not have a lot of options for financial stability once retirement age comes your way. Prioritize your retirement savings first and foremost, then put leftover money into your child’s college fund.
Open a Dedicated College Savings Plan
If you want to start saving money for your child’s educational future, consider opening a
529 college savings plan.
A 529 plan is a tax–advantaged savings plan available to any individual or family that does not have an immediate need for funds for tuition, room and board, books, fees or other related expenses at an eligible educational institution in the United States.
These plans allow people to save money for their children‘s college education from birth through age 23 (or 24 if enrolled full time).
Any amount contributed by you is completely tax–free up to certain limits, but all earnings within the account grow tax–free and may be withdrawn without penalty at any time without affecting federal taxes or state taxes on earnings.
These accounts for educational finances, and they grow the deposited funds tax-free. Once the time comes to withdraw the funds for college, withdrawals also tend to be tax-free if they’re used for educational expenses.
Include Your Children in the Plan
The best way to save for kids college includes your kids. Your child’s college fund concerns them in a big way, so you should include them in planning for the future. Once they’re old enough to understand the high cost of college, they can help make decisions about their future. If you already have a 529 savings account, it’s one step in the right direction.
From there, you can help your child apply for financial aid when the time comes. You can also encourage your child to achieve a high GPA or take part in school activities to qualify for grants and scholarships. Additionally, it’s reasonable to have young adults work part-time jobs to help cover the cost of books and class materials. In some cases, a
personal loan can help.
While it isn’t easy to plan out a child’s college education, it’s worth trying a couple of smart savings tactics to help with preparations. You don’t have to sacrifice your own retirement in order to help get your child ready for a successful future. College is expensive, but there are options available.
Reconsider Student Loans
One of the most common ways to pay for college is with federal student loans. Most parents turn to loan providers for those who want to fund their children for college.
The amount you receive depends on your financial dependency, income level, and your college expenses. In general, undergraduate students who are dependent on their parents are eligible for an average loan balance of up to $7,500 per academic year (two semesters).
In other circumstances, such as if you’re living independently and pursuing a graduate degree, you can find yourself having to pay off as high as a $50,000 ten-year student loan.
This means that a student who wants to go to college but has no other options can still be eligible for these funds. For example, a young adult might qualify if he or she has little income or assets and plans on attending an inexpensive community college instead of a more expensive private school.
If you’re interested in investing in federal student loans, you can work with a financial advisor to determine the best financial plan in order to get the most bang for your buck.
Keep in mind that approximately
30% of college students in the US are saddled with student loan debt. Furthermore, the average amount of this student loan debt has
nearly reached $40,000 by early 2022, which is an all-time high.
Additionally, before taking out any type of loan, find out how much it will cost and how long it will take to pay off that loan. Make sure that you know what type of debt you’re taking on before going through with the process of borrowing money.
If you‘ve signed up for one and you’re having problems paying back student loans, however, there is always the option of loan forgiveness programs. Find out if your debts qualify for these loan forgiveness programs and learn more about student loan forgiveness
Final Thoughts
As you can see, saving for college is a complex process. You don’t have to sacrifice your retirement fund in order to save for your child’s future. Use these tips to help make the process easier and to avoid sacrificing your own retirement fund.
The financial future of college is a tough topic to navigate, but it’s possible. If you have children in the process of getting ready for college, you’ll want to find out the best way to save for kids college.
If you have a 529 age-based investment strategy, it’s a great place to start saving for your child’s future.
As always, make sure that you are taking advantage of all available resources and talking with your child about what he or she wants from life. If you don‘t have a savings plan yet, consider working with an advisor who can help set up one for your family‘s needs.
