By the time some college students complete their studies and graduate, they would have taken up a large number of student loans for their college studies and upkeep.
The rate at which some college students are taking up loans, they will be lucky if they finish paying off the loans before their generation of children begins University.
But there is another way to deal with this problem; starting a college fund and save for your children’s college.
With a lot of dedication and planning, you can save up quite a bit for college and escape college student loans.
Here are some ways stating how to start saving for your children’s college;
1. When to start saving for college
Many people have other responsibilities besides saving up for their kids’ college. You can have mortgages to pay or your student loan.
You should not neglect your goals. There are other ways to pay for their college education, such as scholarships and grants.
Before you begin saving for your child’s college, make sure that you have;
- An emergency fund of three to six months to cover your expenses, especially if they are unexpected.
- Paid all of the debts that you had before.
- Place about fifteen percent of your salary in your retirement savings through an employer-sponsored retreat plan.
2. Start saving early
Saving for college funds is one of the earliest decisions you can make in your adult life. When your baby is born, it is one of the first decisions you can make.
Your college fund can grow over time because of the steady investments and compound interest.
Some funds can be deducted from your paycheck and be put in your college savings account each month.
If or when you get a salary raise or get a bonus, some can be deducted and added to your college savings account.
Your family members can also help to contribute to the college savings by opening other savings accounts.
If the account you are using allows for third parties to contribute, they can contribute directly to your account or form one under your child’s name for saving.
If your account does not provide these services, family members can contribute by gifting you money that will be deposited into your child’s account.
They will be of great help, especially because financial obligations can pop up at any time.
No matter what your decision is, make sure that you save up for your child’s college since it is a significant investment.
3. Open a Coverdell savings account
A Coverdell savings account is a tax-deferred account that can be used to pay for college, secondary, and primary school education purposes.
The money accumulates without taxation, and making distributions is rid of income tax so long as the money is used for purposes of education.
For this account, the savings are supposed to be used by the time you are thirty years old. If not, you will have taxation penalties.
4. Use a custodial account
These are savings bank accounts referred to as UGMAs (Uniform Gift to Minors Act) and UTMAs (Uniform Transfers to Minors Act).
Mostly, both are alike but the UTMAs, apart from holding cash, can be able to hold other assets like mutual funds or stocks.
How much money you can put into the UTMA or GTMA accounts is not limited. This is recommended if your child is a responsible person.
Your children can be able to access the funds in the account when they are eighteen. They can use the funds for college or any other needs.
5. Permanent life insurance policy
This is a plan to save for college and is usually used families with a higher net worth to their name to provide savings that are tax-advantaged for many goals. These goals comprise a higher education.
This kind of insurance policy is a conservative life insurance policy. Some of the funds from your premium are put out into the death benefit, and some of the other funds go into a tax-deferred savings account.
The benefit of doing this is that the funds you have saved can be gotten to, and there are no negative effects if the money is not spent on education.
When looking for financial help from a higher education institution, life insurance does not count as an added advantage.
6. Open an IRA
An IRA is associated with individual retirement accounts with benefits. They can also be used for college if the savings have been deposited for at least five years.
If you have a precious metal account, it works the same way. The price of gold increases if its value appreciates over time as metals just sit in the account and not generate more interest like cash.
To make sure that your children’s college education is guarded, start saving up early. You can also suggest that your child applies for scholarships.
College is expensive; therefore, you do what you can to make sure your child gets through it with ease, at least financially.