Whether you’ll be footing the bill in eight years or 18 years from now, here are five tips for funding your childrens college education.
Depending on how old your kids are, that first college tuition bill may seem like a long way off. But given how much tuition prices increase on an annual basis, youll need to have well over $100,000 in the bank just to send one child to a four-year public college within the next 18 years – to say nothing of a private institution. If you have more than one child, then you can double, triple, or quadruple that number. And if grad school is in the cards…well, you get the picture. Panicking yet? You dont have to. Here are five great ways to maximize your childrens college fund.
- Start early. Its never too early to start saving for your childrens college education. You can even start before theyre born. The earlier you start, the more youll have saved by the time they graduate from high school.
- Gradually increase how much you save annually. Take every opportunity to save more each year. While this can be challenging if you change jobs or find yourself making less than you did the year before, it pays to do everything you can to put away more with every passing year.
- Investigate 529 plans. 529 plans are usually categorized as either prepaid or savings plans. Savings plans work much like 401Ks or IRAs – i.e., your account will go up or down in value based on the performance of the investments you select. Prepaid plans let you pre-pay all or part of the costs of an in-state public college. They may also be converted for use at private and out-of-state colleges. The Private College 529 Plan is a separate prepaid plan for private colleges. Educational institutions can offer a 529 prepaid plan, but not a 529 savings plan (to date, the Private College 529 Plan is the only institutionally-sponsored 529 plan in existence).
- Pre-pay their tuition. With a pre-paid tuition plan, you can make contributions directly to a specific college or university long before your child enrolls. Importantly, these contributions do NOT count against the exemptions for either the gift tax or the generation-skipping transfer (GST) tax. Processing of the payment is contingent on your child enrolling in the institution. If your child does not enroll at the college in question, you get your money back – and can then funnel it to whatever institution he or she does end up attending.
- Look into financial aid. Scholarships, grants and other forms of financial aid can be a lifesaver when it comes to paying for your childrens education. While encouraging your children to succeed in their studies, sports, and other extracurricular activities will certainly help them qualify for financial aid, take it upon yourself to research and apply for as many scholarships and grants as you can.