Money Matters Blog

We all want to be able to help our children out when it comes to furthering their education. But how can you save for your children’s future on top of your own debt and bills to pay? In today’s blog, we want to give a couple quick and simple ways to begin building your baby’s college fund. It may be just a start, but at least it’s a step in the right direction.

529 Plans

One option is a 529 college savings plan, also known as Qualified Tuition Programs (QTP). The Simple Dollar states, “Here’s how they work: You typically invest after-tax money into the plan, and you’re then allowed to withdraw the funds (and any investment gains) tax-free for use toward qualified education expenses, such as college tuition and books.” The drawback of 529 plans is that if your child earns scholarships or chooses not to attend college, your savings may exceed your qualified educational expenses resulting in tax consequences. Consult a tax advisor for more details.

Family Contributions

Instead of having grandma and grandpa buys toys and clothes for 18 birthdays and Christmases, ask them to contribute towards a college fund! Monetary gifts can grow quickly in a Galaxies Unlimited savings account or certificate of deposit. Your child will be very grateful later in life to have the extra funds there to help them go to college, and chances are they won’t miss the toys.

Automatic Monthly Savings

Opening a savings account and scheduling an automatic monthly deposit makes saving easy! Even if you start out with a small amount – say $10 per paycheck – it will build over the years. You can set it up as an automatic transfer from your checking account, or your employer may even allow you to direct your payroll into different accounts to make it even easier. Bonus: help your child learn the importance of savings AND grow the balance even more quickly by bringing him into the bank to deposit any money he receives for chores or birthdays.

Traditional or Roth IRA

Even though an IRA is typically used for retirement, they are also a very practical option for education expenses! If you’re under 59½, you can withdraw money to pay for qualified higher education expenses (such as tuition, fees and books) without paying the 10% penalty that would normally apply, if you’ve had and contributed to the account for at least five years. The expenses can be for you, a spouse, child or grandchild. Many people choose this option over a 529 Plan because any money not needed for qualified educational expenses can remain in the account without penalty.

Scholarships

While you may not be able to apply for scholarships when they are a baby, be sure to keep an eye on your options as they grow up. There are plenty of different places to apply for scholarships, not just through the school. Many people have set up scholarship funds in memory of a loved one and other unique situations they care about. Doing a quick Google search for potential scholarships will show you other sites offering scholarships as well! Just be wary of any sites that require a fee for access and “guarantee” a scholarship. Like most things in life, if it sounds too good to be true, it probably is!

Hopefully these suggestions get your mind thinking about your child’s future. There are so many options to safely store those savings and help them grow throughout the years. If you’re interested in setting up a savings account, CD or IRA with us, contact us today!