Paying for your child’s college tuition can be an incredibly overwhelming process. Of course, along with tuition comes additional costs like insurance, room and board, and books. Many parents simply resort to taking out loans when their children are ready to attend college, but a smarter alternative is to begin saving in advance for your child’s education. Here are five creative ways to make that happen without upsetting your current finances too much.
1. Custodial Accounts
A custodial account is a great way to begin providing your child with money that he or she can later use to pay off college tuition costs. This kind of account is in your child’s name and allows parents, grandparents, or any other friends and relatives to give monetary gifts to the minor. In many cases, these accounts are protected by the Uniform Gifts to Minors Act, or UGMA, and will allow recipients to have tax discounts on the money they receive before they turn 18.
2. IRA Retirement Plans
Many people contribute part of their income each month to an IRA account through their employer. This is a great way to begin saving for retirement and for expenses that might occur later on in life when you are no longer working. While there is always the possibility to withdraw money from this account, there is typically a 10 percent fee for any withdrawals. The exception to this rule is if the money is being used for educational expenses. If you have significant savings in your IRA account, consider investing part of that money in your child’s education.
3. Have Your Child Begin Saving
Since most children receive weekly or monthly allowances from a young age, parents have ample opportunity to encourage saving. If you start by giving your child five dollars in allowance each week, have them put 20 percent, or one dollar, in a savings account or a special jar. Explain to them that this money will be for their college tuition later in life. Early on, the actual amount saved might not be significant. However, the lesson for children will be that 20 percent of all earned income or gifts goes straight towards college savings. Over 10 or 15 years, this can add up and go a long way in helping them pay their tuition in college.
4. Keep Accounts in Your Own Name
Parents might think that starting accounts in their child’s name is a smart way to prepare them for responsibility later on in life. Unfortunately, having large amounts of money saved up can actually have a negative impact on them receiving need-based scholarships or financial aid. Instead, keep accounts in your name or as a joint account with your name listed first.
5. Ask For Monetary Gifts
Grandparents, aunts, uncles, and family friends often ask parents what they should give children for their birthdays or Christmas. Instead of new toys or unnecessary items, ask them to make a contribution to a custodial account or perhaps even a savings bond that will help pay for tuition in the future.
While paying for college is expensive now, tuition costs are only set to rise over the next few decades. These tips can help you to begin saving for your child’s education.
Walter Hicks is a freelance blogger, who writes about education and financial matters for http://www.hometuitionagency.com.sg, an agency that offers affordable home tutoring for kids.