We all understand that sending kids to college is an expensive affair. However, it is surprising that not many families with children have a well-planned investment strategy for the college education of their children. Many Parents Investment Guide for Your Child’s Education and keep aside a certain amount of money in a dedicated account for this purpose. However, in most instances, that amount does not cover a significant part of the overall expense.
Assuming a 7% increase in tuition fees per year, families with newborns are likely to pay well above $400,000 for the undergraduate degree of their kids when they grow up. The amount parents need to set aside per month in a college savings plan to cover this expense is around $875. This may not be a feasible option for many families around the country. However, any amount saved is certainly better than saving nothing at all. Of course, by starting to save early, they can reduce this burden significantly in the future.
Mentioned below are some options the Parents Investment Guide for Your Child’s Education.
- 529 Plans: As parents, you have two different types of 529 Plans to choose from. In a pre-paid tuition plan, the parents can lock-in the current tuition rates for colleges at in-state public colleges. Some of these plans can be converted even for out-of-state or private schools. 529 plans essentially allow the parents to purchase tuition credits that they can use five, ten, fifteen, or even twenty years later. There is no much risk involved because most of these plans are guaranteed by the state’s government. Pre-paid tuition plans specifically for private colleges are also available. The second type of 529 Plan, the college savings plan involves investment by the “Parents Investment Guide for Your Child’s Education” in mutual funds or something similar. Depending on the market conditions, the fund available in the account will fluctuate. The advantage of these plans is that it is possible to invest in plans beyond the home state and the funds can be used for any college.
- Coverdell Education Savings Account: Previously known as the Education IRA, this option allows saving money to cover the cost of education with tax-deferred growth. Compared to a 529 Plan, Coverdell Education Savings Account provides more Parents Investment Guide for Your Child’s Education flexibility and lower operating cost. Provided the parents meet the requirements of income eligibility, they can contribute up to $2,000 every year. These accounts can be opened at any American bank, for any individual under the age of 18.
- Custodial Accounts: Custodial accounts such as the Uniform Transfers to Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA) can be set up by an adult including the parents, on behalf of a child. These accounts have no annual contribution limit. However, the parents must be mindful of the fact that custodial accounts are always in the child’s name. Therefore, this may affect the eligibility of a child for federal financial aid. Also, the child will have complete control of the money, once the age of consent is reached.
- Life Insurance: This is often a preferred alternative for the parents because of the lower risk factors compared to a 529 Plan. However, the policy must remain active for at least eight years for the parents to see any return. Whole life insurance policies are particularly popular because a minimum return is guaranteed for the insurers.
- Savings bonds: Series I and Series EE are two types of savings bonds suitable for parents saving for child education. These bonds are risk-free and reliable because they are backed by the government.
In today’s rapidly expanding world of finance, there are plenty of non-conventional investment opportunities for the parents. But believe it or not usually, the simple and secure routes are the best to go with as I have suggested above, because they provide predictable and regular returns and some have an amount of tax-deferred status depending on the plan.