by Heather, September 15, 2011
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Planning for college for your school age children can be a scary thing, especially if you haven’t started a college saving plan yet. Many people continue to put it off because the cost of education today continues to grow. But thankfully, there are many different ways that you can save money for college so finding the best option for you and your family will be a good start.
One option that is employed is to just have a set amount of income each month moved into a savings account automatically. This account should be designated just for college so it is not considered an emergency fund. You want to basically forget about it until a good amount of money is in that account. Once the money reaches a set dollar amount, you can write personal checks to move it into a bank sponsored account or a different interest bearing account.
There are federally mandated accounts such as the 529 College Plans that you can use too. These are normally set up by a stock broker, a bank or even some insurance companies offer them too. This plan has some great perks and also some restrictions. So make sure to read and understand everything about this plan before depositing your money in one.
The beauty of the 529 Plan is that the money saved is tax deferred and when the student begins taking distributions, that money is tax deferred too. Another great feature is that this plan remains in your name and you can reclaim the funds at any time for another use although early withdrawals could get a tax penalty. These plans usually have low setup and maintenance fees and the minimum deposits into the plan are affordable and can be handled by automatic deposit, if you choose.
If all of the money is not used in the fund after the schooling is finished, it can be rolled over to another sibling or close family member. This is a great plan for families that have multiple children as you can just pay into one fund instead of several separate ones. And you can save up to $200,000 per child.
Another option is the prepaid college plans that some colleges are using now. You can start paying now for a college tuition and lock in today’s rates. This is a form of a 529 Plan and could be a viable option.
Mutual funds and stock investments are another long term savings vehicle that you can look at. This will allow a broker to manage the fund for you and there are many safe options in the market still.
Of course, the sooner you start to save the better, but there are many more plans, ideas and ways that you can save for your child’s college education. But starting is the first step.