Being a parent can be fulfilling as you help your child(ren) and from what I’ve seen with friends, it starts with thinking ahead and preparing as best you can.
A concern of many parents is their child(ren)’s post high school education.
Going into heavy debt for college can be financially devastating, but parents can help direct their children to start saving. One way they can do that is by example and having some college savings set aside.
What are My Options for College Savings?
The two big options for parents looking to fund their children’s education are Education Savings Accounts (ESAs) and 529 plans. What are they and what benefits do they have?
- 529 plans- These plans are named after the IRS code that created them. There are basically two types of 529 plans, one is prepaid plan and the other is an investment type plan.
- Educational Savings Accounts – These accounts work a lot like IRAs, but they are created for college savings. You decide what you want to invest your savings in.
Which one is right for you? It depends on on a few factors. It’s best to not rush into it and weigh your options.
Factors to Consider with Educational Savings Accounts
If you’re looking for the best deal for your family, here are some things that you need to think about.
- Family Income – If you your family makes over $200,000 a year, you may want to contribute to a 529 plan.
- Contribution Limits – With an ESA, you can contribute up to $2,000 each year. If you want to set aside more money, you make want to look at 529 state plans.
- Account Control – When your child is of age, do you want to remain in charge or do you want your child to be in control?
If you have a small child, investing for their college education can pay off wonderfully. Consider looking at growth funds to maximize your returns over time. As the date approaches, you’ll want to choose more conservative investments.
Thoughts on College Savings
If you’re a parent, have you started saving for your kid’s college tuition? Why or why not? What college savings plan did you sign up for?