The cost of a college education is rising every year. Therefore, it is very important for parents to begin developing plans and budgets to send their children to school before the time comes. Creating a college fund is one of the first things that any parent should do when they are preparing to send their child off to college. A college fund can be stored in a secure savings account that will not be accessed until the child is ready for school.
Beginning to Save
The best time to begin building a savings account for college is early, long before a child is ready to go to school. Saving early for a child’s education allows parents to add more into their children’s college funds and also allows them to contribute less to the funds over time. Parents can begin saving for their children’s college educations before the children are even born; there is never a time that is too early.
Creating a Budget
The amount of money that a child will need to go to college depends on several factors. However, if a parent has a general idea of where their child would like to go to school or the field their child would like to study in, they can develop a budget around the average cost of education in these areas. It is better for a parent to contribute too much to their child’s college fund than too little. A child can always apply for scholarships later that will further reduce the cost of their education.
Different Types of College Savings Accounts
There are a variety of ways for parents to securely save money for their children’s education. Financial institutions have created several specific accounts and account types for parents to save money for their children.
Traditional
A traditional savings account is a secure way for a parent to save money for their child’s college fund. However, traditional savings accounts do not accrue much interest over time.
529
A 529 savings account is a tax-advantaged savings account that is designed specifically for parents to save money for their children’s college funds.
Coverdell Education
A Coverdell Education savings account is like a 529 savings account, but there are limitations on the amounts of money that parents can contribute.
Prepaid Tuition
Prepaid tuition plans allow parents to pay for their child’s in-state tuition ahead of time.
Uniform Gifts to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA)
UGMA and UTMA accounts allow parents to gift money to their children while retaining full control over the accounts until the children have reached legal maturity.