Paying for your child’s higher education begins the day they are born and in some cases even before that. It is a huge responsibility to save and prepare a cushion that will allow your child to pursue his/her dreams.
Making the right choices can be the only thing standing between you and a bright future for your child. There are a number of myths surrounding the whole saving for college idea. Besides choosing the right saving plans there are several other things you can do to save up.
Following are all the possible options you have to provide your child with good educational prospects:
1. 529 Plans
These qualified tuition plans are offered by 49 states across the U.S. These plans are set up using after tax money which can later be drawn to invest in college tuition without paying any tax on the withdrawal. The plans may vary from state to state and offer a number of options for annual fees, operating costs and so on. The contribution limits for these plans are also quite high compared to Roth IRAs. You can contribute in batches or once a year to these plans depending on your financial stability.
2. Roth Iras
These saving accounts are usually referred to as retirement savings plans but they can also be used to fund college education. Most of these funds can be withdrawn tax free after you are 59 and above.
3. Prepaid Plans For College
These plans allow parents to pay a substantial amount of the future tuition fees now at the current prices. This can be done even if the child is years away from attending college. For example if the tuition per semester of your prospect university is $20000 you can pay 50% of the amount now. Whenever, your child is ready to join college their 50% tuition fees will be prepaid. Many states offer these plans along with the 529 plans.
4. Education Savings Account
These plans are a variation of the 529 plans. They are also tax free accounts that help save for your child’s future education and just like the 529 plans they are considered the parents asset and not the child. This keeps the chance for your child getting federal aid open. The only difference is that the contribution amount is limited in comparison. The contribution amount per year is limited to 2000 dollars per child. These funds may also be used for private tuitions and schooling as well. If your child fails to use these funds by the time they are 30 taxes may apply.
There are several websites that offer you the opportunity to set up profiles for your child. This is a great way to generate contributions and funds for your child’s future. You can set up an account with your child’s details on thegiftofeducation.com and provide the link to friends and family for contribution. All you have to do is set up a 529 plan and then link it to the profile on thegiftofeducation.com and family and friends can contribute. This is a brilliant way of generating funds.
The most important action you can take is to actually save. Putting in an effort to earn some extra cash is wasted if you are not immediately saving the earned amount. Remember, all other things are secondary to good education.