Your child is a genius and you want them to go to the best school, so you need information on creating a college fund that is right for you. Most parents want their kids to attend college without them accruing any debt, and they also understand that this has to start early. In fact, it is recommended to start saving for college as soon as you get your newborn baby.
That may seem like a stretch, but if you want to have a stress-free time when your kid is in college, the earlier you start saving, the better for you. We’ve got information on creating a college fund that doesn’t have to be difficult. College fees have risen considerably in the last couple of years, and this makes it extremely difficult for most families to afford paying costs without getting into debt.
Tuition and living costs can go as high as $60,000 a year, as a private university and more than $30,000 for a state university. Fortunately for most people, there are ways you can save for this. You should start a college fund using the available saving modes, and this will help you achieve your college fund just before the kids go off to college. Our editors have dived into creating a college fund for newbies to help you out. In this review, we give you a short guide on how to go about this and the funds that are available.
Decide Which Account You Need For Creating A College Fund
This is the first step. There are many different types of savings accounts, and you must first decide on the one you wish to use. The most common ones include the following:
529 Plan – 529 saving plans are usually run by the state and they are opened directly by a brokerage fund. The 529 plan also allows you to contribute money directly, and invest in mutual funds such as 401(Ks) you can withdraw the money tax-free for qualified education expenses, and the contribution limits usually have some tax incentives.
Coverdell ESA – this is similar to a 529 plan in terms of the tax treatment, but there are a few key differences; the main drawback is that you can only be allowed to contribute $2,000 only per year for each beneficiary. You can, however, invest the rest of the funds in bonds, and stocks and the best thing about this option is that the money can be used to pay for any other level of education, not just college.
Roth IRA – Roth IRA is usually not specific for college savings, as it is more of a retirement plan, but it can be a useful alternative. There is a great exemption with Roth IRA that says that the funds can be withdrawn at any time – penalty-free for use in paying college expenses.
Choose A Broker Or Invest Directly Into Creating A College Fund
This step is for 529 plans only. The reason why we are highlighting the steps for a 529 plan is that it is one of the best and the most popular of all college saving options. While the investing procedure varies state by state, we shall explain a simple plan that is applicable to all states when choosing how you wish to invest.
The first option for creating a college fund is the direct option that can be funded, open and managed directly through the state-run website but it is only available to the state residents. Any savers who wish to invest in the plan and are not residents of the state can invest through a financial advisor. But, there are some states such as Tennessee that usually allow anyone, regardless of their residential status to invest directly in their 529 plans.
In addition, most online brokers usually offer specific 529 saving plans for creating a college fund such as the TD Ameritrade’s plan.That planis sponsored by the state of Nebraska and is open to all US college savers.
Make A Decision On The Investment Options Best For You
In the 529 plan we have discussed above, there are various stocks and bonds based investment funds you can choose from for creating a college fund. These vary in terms of the level of risk. There are pre-packaged portfolio options that are designed to be risk-tolerant – aggressive, conservative, etc. these are targeted –date funds that will gradually shift from being aggressive to conservative investment as your child gets closer and closer to the college-age.
If you decide to choose the Coverdell or the Roth IRA, it is not so simple after all, because there are thousands upon thousands of investment options. However, this does not have to be too difficult. The brokers usually help you decide on the best.
Creating A College Fund Account
Creating a college fund account is easy because you can deposit a lump sum in the account, or you can deposit little-by-little at a time. You can also set up an automatic contribution that can be done weekly, quarterly or monthly. This is quite flexible and you can do the funding as you wish.
Creating A College Fund Conclusion
Having a solid college plan for your kid is the first step towards ensuring that they are set up for the future. It is important to start as early as possible so you can have flexibility with the investment options. When you are in the midst of creating a college fund, it can seem overwhelming, but the above information should help you get through that. With that information you should easily be able to get into planning so you and your children are confident and happy when it comes time for college.