Ways to Invest for Your Child’s College
Paying college tuition has become quite a thing of worry for many young parents. They tend not to know ways to save and invest for their child’s college funds. In today’s article, we will be looking at five ways to invest for future college tuition costs.
Why Invest now for your child’s college tuition
Imagine that you are already an independent person and decide to start a family. You have two children; one and three years old, respectively. The only thing you think about now is to give them the best opportunities and tools so that they have a proper childhood and development.
However, the time will come when you will have to consider financing your children’s higher education. That’s when you realize that somehow you have to find a way to raise money to make possible what most parents dream of; allowing them to study.
If today a family has more than one child studying, the monthly expense can easily exceed $5,000 depending on the career. Nobody knows how this value can evolve in 20 more years, therefore, providing the opportunity to study entails a significant expense that must be paid in some way to prevent them from starting their professional life in debt.
Children are everything to us. We dream of seeing them grow well and win the world. And one of the essential steps is their training. We want to see them graduate from the best universities and with the best grades. After all, ensuring an excellent education for children is the smartest way to provide a full future.
We know that choosing a college is an important moment in the life of any young person. As parents, we can provide children with the best universities’ choice, which is a stepping stone for relevance. With proper planning, it is possible to guarantee the children the longed-for choice of a good university, and the course he/she wants.
5 Ways to invest for your child’s education
There are numerous ways to invest for your child’s college education; however, they all fall under savings and investment. Below we will look at the various options available to secure that college of choice for your child:
College is a long-term investment, essential for the financial and professional success of children. For this very reason, you should start thinking about it as soon as possible. The sooner we plan the children’s college, the longer it takes to save the necessary money and the less the effort. Start by setting savings goals. If your child is ten years old, you will likely not start paying for Higher Education until eight years from now. This allows you to save little by little, thinking about the long term.
Being a parent and investing in higher education is rewarding. Thus, we want you to learn how to do it regardless of your children’s age. Here are four tips to help you start saving as soon as possible:
- Analyze your financial situation: the ideal is to start saving money from the birth of your children. Suppose you started saving later for higher education. You must see what state your current financial situation is in, know how much money you have to pay for studies, and consider if you eventually require some financial support.
- Start with a term deposit: start a savings plan with a fixed-term deposit, which allows you to save a certain amount of money each month in a bank for a specific time. After this period, the entity will return the money, along with the agreed interest. However, the total savings can even be doubled depending on the type of investment tool you will use.
- Open a savings account for children: if you did not start saving since your child’s birth and some years have passed, you can open a savings account for children. Consider that you will have to make up for the lost years. Opening a savings account for children is an option that several banks offer. You can start with an initial amount of between $1,000 and $5,000, and thus help your child in the future to study “free.”
- Start early: Many young parents, in general, are bad at saving, but there is a growing awareness of this important habit, especially if it is to do so voluntarily. If you start saving when your children are young, you can reduce their need to apply for a loan in the future, while you earn interest by opening a fixed-term savings account as we already mentioned. As you have seen, the secret is to save consistently and gradually increase the amounts. Here the time and the interest rate offered by each bank will play in your favor.
Select profitable investment options
In the long run, saving is very important to pay for the children’s college. However, the long duration brings a problem; the devaluation of money. If you are not careful, inflation will erode the amount saved for your children’s education annually, and when you see it, you will not have enough. The best way to prevent this from happening is to invest your money. So, in addition to protecting yourself from inflation, you still make that value grow over time. Just as when saving, the longer the time of your investment, the higher the return. There are numerous great options for those who want to save money to pay for their children’s college:
2. Take advantage of 529 plans
The 529 plans are good alternatives for investing in education for children in the United States. Many people are now making use of the 529 plans due to their potentially significant tax and estate planning advantages and capacity to change the beneficiary. These education savings plans tend to be free from tax, mainly when used for college education expenses. It should be noted that the proceeds can be used to purchase a car for college, living expenses, stocks. However, the tax will be deducted if used for these purposes as they are not deemed qualified educational expenses. There are two main plans under the 529 plans, namely:
- College Savings Plans: with these plans, you have more freedom on the amount to invest, the type of investment, and you can also use it to pay for your child in any qualified college.
- Prepaid Tuition Plans: with these plans, you protect yourself from the future increase in tuition fees as you pay the college’s current tuition. It is advantageous when there is an increase in tuition fees when your ward is ready for college. However, you lose when the return on investment is higher than the future tuition fees. Another drawback of these plans is that there is a low likelihood of being used in institutions located outside the state in charge of the policy.
3. Try Coverdell education savings accounts (CESA)
The CESA plan allows parents to save for the educational expenses of their children regardless of the level. And this done by saving a maximum of $2,000 annually for a beneficiary up until the child turns 18 and the money must be used before the child clocks 30. The only exception is when the child is a special needs child as defined by the government. It is tax-free when it is used for designated educational needs.
4. Trust Fund
Before the emergence of the 529 savings alternatives, Trust fund was the way to save for college. These funds are set up as custodial accounts, after which they are transferred from parents to their children’s accounts. And invested on the child’s behalf until the child reaches the age of trust termination, which is dependent on the rule of the state in which they reside, which is usually between 18 and 21. When this is done, the child can do whatever he or she desires with the fund.
5. Invest in an Insurance policy
Regardless of how much you save and invest in your child’s college education, having an insurance policy cannot be overlooked. Your insurance policy serves as leeway for your children if you are no longer present or the investment goes south. The insurance will aid in covering the educational and social needs of your dependents. Some insurance policies that work like a trust fund exists.
As you can see from the alternatives mentioned above, the sooner you start investing in your child’s college, the less your monthly effort will be to fulfill his dream.