The years fly by faster than you think. While it may seem like there is plenty of time between now and when your child goes to college, the reality is that the sooner you start saving for college, the easier the transition will be.
To help you with some ideas on how you can start saving for college, here are six steps to consider that will help with college expenses.
1. Incorporate College Savings into a Budget
Saving early is the best advice we can give. Add college savings as a line item in your monthly budget. Identify how much you can contribute without sacrificing contributions for retirement, healthcare, mortgage, and other expenses. Incorporating college savings into your budget will make it easier to establish a long-term habit of contributing each month.
As your income grows, get ahead of your savings plan by increasing your monthly contribution. The more you contribute early, the more those funds will grow by the time your child graduates from high school.
2. Choose a Tax-Advantaged Savings Plan
There are many advantages to using Education Savings Accounts including 529 Plans and the Uniform Transfer/Gift to Minors Act. Each of these has varying contribution limits, tax liabilities, and restrictions for how the funds can be used. These plans vary from state to state, so it is important to identify which is best suited for your estimated needs. Before signing up for any plan, be sure to meet with your financial advisor to go over each savings option's advantages and drawbacks.
3. Open a Savings Account for Your Child
Financial management is a skill that every child should learn long before they go away to college. Over the years, your child will have various odd jobs, birthday money from family, and holiday surprises. Establishing a savings account can help them grow their savings and learn how to manage their finances. If you haven’t set this up yet, it can be a great activity to do with your child to get them acclimated to managing their finances as well. As they enter high school, they will enjoy the feeling as the account grows, and they will be more inclined to help contribute to their future educational expenses and understand the value of saving for college.
4. Use a Roth IRA
What if your child never goes to college? What if their college expenses are significantly less than estimated because of scholarships or lower tuition? This is where contributing to your Roth IRA can be an advantage. Under the current tax code in 2020, individuals can make penalty-free withdrawals in order to pay for college expenses for a child. Any funds remaining after you have contributed to your child's education can remain in the account and be used for your golden years.
5. Adjust Your Savings Plans as Needed
It is hard to predict what will happen 5, 10, and 20 years from now. Your child's interests will evolve, their educational desires will change, and their school of choice may change. Build flexibility into your savings plan and regularly adjust it to meet changes in your child's educational needs, changes in the tax codes, and changes in your financial status. Don't assume that what you decide today will be the right fit down the road. Also, don't hesitate to take advantage of rollovers, increased contribution limits, and other changes to the law that may make it easier to pay for college expenses when the time arrives.
6. Research Financial Aid, Tuition Assistance and Scholarships
If you are currently evaluating universities, another next step is to see what the school’s can offer to you to help with the financial side of your child going to college. For example, there can be financial aid, tuition assistance, and scholarship opportunities that you can take advantage of depending on your needs. Learn more about the tuition assistance programs we offer at Fort Hays State University. In addition, we have student loan options and scholarships opportunities. We want to help you and your child have an easier transition to college, and these programs can help you in addition to your existing college savings plans.
As you can see, there are a lot of ways to start saving for your child’s college early. Even if you haven’t started on implementing some of these ideas, it’s not too late to start. Keep in mind your child’s goals, interests, and your family’s financial history to determine what college savings opportunities are best for you.
If you’re currently evaluating university options and even scheduling campus tours, we invite you to download our checklist, “10 Questions to Ask During Your First College Visit.” This will ensure you ask all of the right questions to make sure your campus visit is a success!
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