Saving For College

Saving For Your Child’s College Education—4 Things To Consider

It’s easy to put off saving for your child’s college education, especially when they are tiny, because it seems so far away. But the days turn into years much faster than you expect. Before you know it, your little one will be applying for college and buying extra-long sheets for their dorm room. But regardless of how old your child is or how much extra money you have to save, starting today will give your family more choices in the future.

Here are four things you can do today to get started:

1. Figure out how much you should have saved right now. Fidelity offers some advice to help parents know how much to save for their child’s college education. The financial services company recommends multiplying your child’s current age by $2,000 to get an idea of how much money you should save to pay for 50% of a 4-year degree at a public college. A 2017 CNN Money article estimates that expenses for four-years at a public college will cost state residents almost $57,000.

So, if you have an 18-year-old, between your $36,000 savings fund, financial aid, student loans, and other family income, you should be well on your way to financing your child’s college education. This $2,000 rule assumes you use a 529 plan.

2. Open a 529 plan for your child. According to the SEC, (Securities and Exchange Commission) the 529 plan is a “tax-advantaged savings plan designed to encourage saving for future college costs,” and it’s sponsored by states, state agencies or educational institutions. There are two types of 529 plans: prepaid tuition plans and college savings plans. Check the SEC website to determine which plan is best for your family.

3. Suggest that grandparents contribute to the 529 plan. Instead of giving your child more toys or video games, suggest that grandparents give the gift of education. By adding a contribution to the 529 for birthdays and holidays, they will be helping fund their grandchild’s future instead of just filling up their toy box. Their 529 contributions also qualify for the annual gift tax exclusion, so they can provide an estate-planning advantage.

4. Set up auto contributions to your child’s 529 fund. It’s easy to not miss money that you never see. By setting up an auto withdrawal, a set amount of money is transferred into the fund. When the funds are automatically deposited, you can’t “forget” to contribute or decide to spend the money on other things. Start small with an amount you won’t miss — even $50 or $100 — and watch the money grow over time. When you get extra money, such as a raise, bonus or inheritance, make a larger contribution.