04 Aug What Can I Do Now to Prepare for My Child’s College Tuition?
If you are a parent, chances are you’ve already thought about your child’s future education and wondered how you are going to finance it. If this is you, here’s the good news: you’ve started thinking about your child’s college education at the right time. The best way to prepare for future college tuition expenses is to prepare for them years in advance—even as your child is just beginning to learn how to talk. Here is a brief guide to how you can prepare for your child’s college education starting now using the most popular college savings plans.
Starting a college savings plan is definitely the most sure and concrete way that you can save for your child’s future college education, and which college savings plan you go with will depend largely on your financial situation. You’ll of course want to meet with a financial adviser to discuss what will be best for you and your family, but here is a brief look at some of your options.
There are different kinds of 529 plans (as each state has its own), but in general, a 529 plan is a vehicle for saving for college that offers some tax advantages (such as earnings not being subject to federal taxes). One advantage to a 529 plan is that it is considered your asset, meaning that it will likely have less bearing on how much financial aid your child is entitled to.
A Coverdell Education Savings Account is similar to a 529 college plan in that earnings are tax-advantaged when the money is used to cover educational expenses, and the funds are considered your asset rather than your child’s. A Coverdell ESA differs, however, in that it can be used to cover any educational expenses, including K–12 educational costs like private school tuition. On the other side of the coin, there are limits to how much you can contribute to one each year.
Prepaid college tuition plan
Some states offer a prepaid college tuition plan, where you can essentially start paying for college tuition now at today’s prices. So if by the time your child turns 18 tuition has soared to $10,000 per semester, but you locked in a plan when tuition was only $5,000 per semester, you’re saving big-time on college tuition in the long run.
Remember not to sacrifice your own future financial stability when saving for your child’s college education. While grants, scholarships, and loans are all financing options that are available to you when it comes time to pay college tuition, you won’t have such options when it comes to financing, say, your retirement. Meet with a financial adviser now and decide what you can afford to set aside as your child nears college-age.