Best Ways to Save for College

College expenses are increasing exponentially every year.  Yet, more and more careers are requiring a college degree.  What can you do to secure the education your child needs without incurring a mountain of debt?  Here are some tips you can use today to help send your child to college without sending you to the poor house:

• Begin immediately. An old saying goes, “The best time to plant an oak tree was 20 years ago. The second best time is now.”  When you’re looking at large cost item like college, it’s important to begin as early as possible to get your money working for you now.

• Fully fund a Coverdell Education Savings Account plan. This is an IRA-like investment where your money grows tax deferred.  $2,000 is the annual contribution limit, so you’ll need other saving options, but it’s a great starting place.  Though higher-income families may be disqualified for Coverdells, relatives or friends can contribute towards the $2,000 for you.

• Invest in a 529 plan. These are state-initiated college savings plans where after-tax dollars are invested and your money grows tax-deferred. The amount you can put in each year is high, so limits are no worry. However, these plans can be confusing and expensive. Consult reviews provided by Morningstar, personal finance magazines, or www.savingforcollege.com. These rate the various plans with their pros and cons so you can make an informed decision.

• Consider taxable accounts. The one drawback to 529s is that the money must be used for college expenses or you face withdrawal penalties.  If you’re uncertain of your child’s education goals, you may want to simply invest in a regular taxable investment account. You won’t get the tax benefits, but for families needing flexibility, it’s an option.

• Develop sweat equity. As soon as your children begin earning money, save a portion in their own college fund.  Begin an investment account and if you’re able, match their savings for extra encouragement. Having your child contribute to his own education will produce far more than cash to go to college.  His investment might just be the incentive needed to complete it.   

• Be creative. Consider non-traditional ways of saving for college like becoming part of Upromise (www.upromise.com).  When you join Upromise for free, leading companies like Coca-Cola, Kellogg’s, Exxon Mobil, and thousands of stores, services and restaurants will automatically contribute a portion of what you spend with them into your Upromise account, which you can use to pay for college expenses. In addition, you can send invitations your family and friends. When they accept and become a Upromise member, a percentage of their everyday purchases are automatically deposited into your Upromise account. There’s no catch – no higher prices to pay – and 6 million families have already joined. Use this or a similar creative method for funding college expenses.

These are just a few of the strategies you can use to prepare for your child’s education needs – some without any cost to you!  And remember that whatever is saved now is that much less to be repaid (with interest) later.  So begin today!

Comments

[Tyler]

Thanks for the upromise link. It seems like a VERY useful site.

[Margo]

I'd like to add this -

Get your HS student a summer job as soon as he or she is eligible for a work permit. The parents can then "gift" money to the child, to place into a Roth IRA. The gift amount would be the max. of the child's earned income or the annual limit for that year.

You can withdraw your contributions at any time. I'm not totally certain about earnings, but if nothing else, you can leave the earnings in the account to accumulate additional earnings while the child is in school.