Saving for your child’s college expenses can be an overwhelming thought, especially if you got a late start in the process. If you have multiple children, the task might seem impossible. Fortunately for parents, there are some great ways that you can plan for your son or daughters scholastic endeavors. We will be sharing some of these college saving tips inside this article.
What Are College Expenses
Understanding the cost of college is not as simple as calculating tuition, though that is certainly a large part of it. In addition to tuition and college fees, the following should also be calculated into the costs of your child’s post-high school educational expenses:
- Room and board
- Personal Expenses (food, cell phone, laundry, cable, Internet, and clothing to name a few)
- Books and Supplies
- Transportation (bus fare, car payments, insurance, registration, gas, automobile maintenance)
College Saving Tips for Parents
There are many different options to choose from when deciding how to save for your child’s college tiution and expenses. Financial aid, Pell grants, scholarships, and student loans are all options, provided your child qualifies for these. Even if these benefits apply to your son or daughter, they may not fully pay for tuition, especially at larger universities or if the student decides to go to an out-of-state institution.
Qualified Tuition Plans or 529 Plans
529 Plans are administered through either the state or a university and offer parents the ability to purchase tuition based on today’s prices, which, in turn, can be used by a child in the future. You can purchase a 529 plan in two ways. First, you can opt to go the savings route, whereby you regularly contribute to a savings account. The benefit of this route is your son or daughter can use the savings for any college or university in the United States.
The second option for a 529 plan is to pre-pay. This plan has limitations, as not every state has adopted this version of the plan, and as such, students whose parents purchase it will be limited to participating states. In addition, the student (or parent) must be a resident of the state where the college they intend to go to is located.
Coverdell Education Savings Accounts
This form of college savings account is another option that allows parents, friends, and relatives to make deposits into an educational account tax free, so long as the total amount donated does not exceed $2,000 in any given year.
Custodial accounts are another option, though they are less tax-friendly than the above two types of college savings accounts. Parents choose how much money to invest and how the funds are invested, then pay a tax on moneys earned over $850 annually. In addition, any withdrawals are also taxable.
Other College Savings Options
While we tend not to recommend it, you can also pay for your child’s college expenses by tapping into retirement accounts or IRA/Roth IRA accounts. This sort of funding is typically frowned upon, however, as aging adults may find it more difficult to re-fund their retirement than a younger student might have paying their educational expenses.
Home Equity Loans and Home Equity Lines of Credit are other options, though not ideal for obvious reasons.