8 Ways to Save for Your Child's College Education
If you are a new parent or your kids are young, you'll want to do one thing right now, if you haven't already: Start looking into college savings plans.
And then do more than look among the best college savings plans. Pick one and start socking money away. Time is a-wasting.
After all, according to data reported to U.S. News in an annual survey last year, the average tuition for the 2019-2020 school year ranged from $41,426 (for private colleges) to $11,260 (for state colleges). That's the average tuition per year. And unless something changes in how people pay for education, college costs in the future are going to be even worse.
So if you're looking for a college savings plan that works for you, here are some suggestions:
- Open a 529 plan.
- Put money into eligible savings bonds.
- Try a Coverdell Education Savings Account.
- Start a Roth IRA.
- Put money into a custodial account.
- Invest in mutual funds.
- Take out a permanent life insurance policy.
- Take out a home equity loan.
Open a 529 Plan
You're probably familiar with 529s. They are savings plans, usually sponsored by state governments, that encourage saving for future education costs. They often are tax-friendly, in the sense that many states will let you deduct your contributions from your state income tax – and when you withdraw the money for college, the money won't be taxed.
You can put money into your own state's 529 – or any other state's plan. So if you live in Idaho but like Indiana's plan better, go for it.
But open up an account sooner rather than later.
"It's never too late to start saving for education, but we do encourage parents to start saving when their children are young. The more time the account has to grow, the more money kids will have available when they need it for education," says Laura Morgan, vice president of communications, savings and legal affairs at College Foundation Inc., the nonprofit umbrella organization which oversees North Carolina's NC 529 Plan.
It often doesn't require much money to get started. In NC 529's case, Morgan says you can open an account for $25.
The important thing, of course, is to keep putting in money to your child's 529 every year and preferably every month. Otherwise, the interest on that $25 isn't going to amount to all that much over the next 18 years.