College tuition and fees for the 2020-21 school year average $9,687 for state colleges and $35,087 for private colleges. These figures are expected to rise, so it’s a good idea to start saving now. With three strategies, you can save money for your child’s college fund whether you have a traditional job or work in the gig economy.
1. Plan Ahead
Select a college fund as you plan ahead for your child’s future. You have several options, so do some homework and choose the fund that’s right for your financial situation and your child’s anticipated future needs.
A 529 savings plan is sponsored by your state. You may be able to deduct contributions from your state income tax return, and your child can withdraw the money tax-free for college. Coverdell accounts are tax-deferred trusts that must be used by the time your child turns 30. Earnings and distributions are tax-free, and the funds can cover elementary, secondary or college tuition, room and board.
An IRA can pay for your child’s education or another expense if your child decides not to attend college. Open a Roth IRA with after-tax dollars, and the money grows tax-free. You can also invest in a traditional IRA and pay taxes on the distributions.
A custodial savings account called a Uniform Gift to Minors Act (UGMA) and a Uniform Transfers to Minors Act (UTMA) allows you to save as much money as you want and is accessible when your child turns 18. Both options can include cash, stocks and mutual funds, or add real estate to a UTMA.
Eligible savings bonds are guaranteed by the government and include little to no risk. The annual fixed rate of 0.10% for individual Series EE savings bonds is very low, though. CollegeBacker is a modern college fund that allows you to save in multiple ways. Contribute to a 529 plan, accept contributions from family and friends, or earn cash back on purchases.
2. Save Over Time
It’s never too soon to start a college fund, even if you’re a newlywed, newly pregnant, or the parent of a young child. Why is planning ahead important?
For starters, the money in a college fund can earn compound interest between now and the time your child turns 18. Make regular contributions, and watch the balance grow! Consider using a company like UPromise to help you save over time.
Second, a college education will only get more expensive in the future. Save now to reduce your child’s need for student loans and future debt load.
Finally, boost your child’s college fund with contributions from family and friends. Loved ones can deposit money directly into the fund and invest in your child’s future.
3. Consider it Spent
When hard financial times hit, you face unemployment or an emergency happens and you need to make up for lost income, you may want to dip into your child’s college fund. Don’t do it. Consider your child’s college fund spent.
If you do need money to make ends meet, you should find ways to reduce expenses or consider accessing your emergency fund. With planning and discipline, you can begin today to invest in a college fund for your child’s education and future.
About the Author: Jennifer Turner writes web content for a variety of clients. As a gig worker, she understands the benefits and challenges of the industry, which is why she prioritizes daily self-care. Find her at WriterAccess.