Getting a college education is expensive, but college funds aren’t exclusive to those who have parents that happen to be independently wealthy. You can start a fund for your child now, on virtually any budget. If you plan early, it won’t be necessary to come up with a large sum of money at one time. So, get started as soon as possible.
Essential
Setting an education fund up for your baby or young child may seem like a luxury, but it can have many benefits, even if she decides to skip college to become a fire juggling cat trainer. According to Nicky Dang at Moody’s Investor Service, “Only 51% of federal borrowers whose repayment obligations started in 2010-12 had made any progress in reducing their balances after five years.” If your kid does go to college, that’s a big debt she isn’t going to be dealing with for years to come. If she decides to go the cat training route, you’ll have money for the European vacation of a lifetime.
Savings
You have several options when it comes to planning for your child’s future education expenses. If you have a trusted financial institution, such as a bank or credit union, an old-fashioned savings account may be a good choice for you. It has the convenience of being linked up with your existing bank accounts, so you can easily move your money around. The accessibility can also be the downside since the money is readily available to you. If you’re not disciplined with your spending, it would be easy to blow it on a cool jetpack or mountain bike, once you have a little saved.
529
A 529 is a state sponsored plan that has many advantages, being tax free is one of them. These can be opened for anyone, by anyone, and family and friends are welcome to contribute to it. The disadvantage here is, if your kid decides to go the fire juggling path, your money may not have accumulated interest. There may also be fees associated with having one of these plans. The exact rules vary state to state.
UGMA
Uniform Gift to Minors Act, or UGMA allows you to set up a savings, free of taxes, that will mature when the child turns 18. While the tax benefits with this plan are great, there are a few potential disadvantages to these accounts. If your baby skips college in favor of fire and cats, you’ll still be funding her ventures. If she does go to school, the money from this account will have a big impact on any free federal dollars she may have been eligible for.
The sooner you get started on preparing for your child’s education, the more advantages and less debt she’ll have.