How to help your child save for college
The costs of tuition, housing, books, and other cost associated with sending a child to college are rising at a dramatic rate. Some studies have shown a 40% increase in the cost of tuition in only ten years. Numbers like this can be scary and but not planning ahead is the real thing to be worried about. Believe it or not it is never too late to start saving for your child's higher education there are things that you can be doing now to be prepared for when they get their acceptance letter.
Below are some suggestions on how to help your child save for college. Remember that every little bit helps and that your kids will look to you for help when they are faced with these financial burdens.
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- The sooner you start saving money the better off you will be. Even a few dollars a month over the course of many years will grow dramatically. Save even more money and you may be surprised how interest will help that money grow. For example, investing just $100 a month for 18 years will yield $48,000, assuming an 8 percent average annual return.
- Stocks are excellent investment options for college savings. Because tuition costs are rising faster than inflation you need a savings and investment plan that is at least going to have a chance of keeping up with the rising costs. A long-term portfolio that is centered on the stock market is the best option. As your student gets close to graduating form high school it is wise to start sheltering your returns by switching more money into bonds and cash, jut in case the market gets weak.
- Talk to your individual investment counselor or firm about the options that you have when it comes to saving for your children's education. They may be able to help you figure out any unique situations that you may encounter.
- Before starting any kind of savings account talk to a tax professional. Sometimes having a large sum of money saved improperly can actually hurt your child's chances of receiving federal aid. As parent's income/assets cannot exceed a certain amount in order to have the student qualify for a grant, you want to be sure that their college savings account does not skew the picture of the parent's financial situation.
- On that note, remember that you do not have to worry about saving the entire amount needed for all four years of your child's education. Federal and state aid as well as private grants and scholarships can actually cover a great deal of the tuition. Your savings may help with housing or books or some other subcategory of expenses involved with going to college.
- Investing in mutual funds is a more user friendly way of investing for college. With mutual funds you put a professional in charge of your savings so that you don't have to watch the markets daily. You can deposit money and forget about it.
- 529 Savings Plans can also be used to save for college and they offer great tax breaks. Qualified withdrawals are now free of federal tax and most plans let you save between $100,000 and $270,000 per beneficiary. Because there are no income limitations or age restrictions, it doesn't matter how much you make or how old your beneficiary is.
- Another popular college savings program is called Upromise. Upromise members automatically receive deposits into a protected college savings account when they make eligible purchases of participating products and services from a list of participating companies. The Upromise College Fund offers advantages that include portfolio investment management and certain federal tax benefits. All you do is go to the Upromise website at www.Upromise.com and sign up to participate in the program.
