Saving for college is great in concept, but sometimes is falls to the last of the list as your children grow up. First, they are babies and need everything new $. Then they start activities like dance, karate and soccer $$. Next up is a car, how did the time pass so fast? $$$ And, then finally they are off to college $$$$ Here are some basics on saving for college as your child grows.
Open an Account – Newborn to age 10
The most impactful thing you can do to save for college is to begin. Starting when a child is very young gives you the greatest advantage: Time. There are several types of accounts that can provide tax advantages depending on your circumstance.
Coverdell Educational Savings Account
Annual after tax contributions up to $2,000 per year grow tax-free and are available when the child turns 18 years old. Investment options are flexible. The fund belongs to the child upon the 18th birthday and the child has control over the distributions to an institution of higher education.
529 College Savings Plan
Depending on the state of residence, after tax contributions of up to $350,000 may grow tax free for use in secondary education. Most individuals make annual contributions similar to the limits of the Coverdell Educational Savings Account, but the difference is that the custodial parent always maintains control of the funds.
UGMA Custodial Account
Uniform Gifts to Minors Accounts allow for other to gift to a student. This is a great estate planning tool for grandparents. However, the child is the owner of the account and it can impact student aid since the student is deemed to have assets.
Get your child involved – Age 11 – 18
As your children age begin talking about college. Why do you need to go to college? What can you study? Where did others in our family attend college? If children begin to understand that there is more school after it begins to become a decision on where to go versus making a decision to go or not.
Explain the application process to your child. Why are applications required? What tests are necessary? Share the concept of scholarships reducing the need for the family to pay out of pocket. Conduct a simple scholarship search together and look for similarities. Do they all ask about extra-curricular activities? Does the application ask about volunteer work. Talk with your child about how their current activates would fit in the scholarship application and look for gaps that may need to be improved upon.
Don’t Stop After Being Accepted – Age 18+
If you have been accepted to a college and even completed a semester there is still money to add to your college savings. Seek scholarships for non-freshman and check out on campus working programs. These types of funding can continue to help offset college expenses.
Start Saving for College Today
Continue the conversation with us at our podcast where we talk to Dorethia Kelly. Dorethia is the founder of #MoneyChat and president of Conner Coaching, LLC providing results-oriented personal finance and business coaching services.