College tuition is probably one of the largest investments that a person will make in their life. As a parent, you have the ability to give your child a head start on this path and save now for their future college education costs. The good news is that there are plenty of options to help you with this goal. Here we will talk about college savings basics, how to get started saving for college, and some of the options available to help you.
College Savings Basics: Get Started
Just like with any budget or savings goal, one of the most important parts of college savings basics is to simply get started and make a commitment to contributing to it regularly. While getting started saving for college early is best, it is never too late to get started. Putting some money away for your child’s college education is better than nothing. It is also important to set realistic goals for yourself. The point is not to try and save the entire cost of tuition by the time your child is ready to begin college. The money you save now can be supplemented by grants, scholarships, loans, and other options once your child begins college.
Numerous College Savings Options Available
There are many options available when it comes to saving for college. These come in the form of savings accounts, investment accounts, and tax incentives for college costs. It is essential to fully educate yourself on the options that exist before you make a final decision on what works best for you. Two of the most common options available are 529 Plans and Coverdell Education Savings Accounts (ESAs).
529 Plans are state-sponsored investment accounts. Every state offers a 529 Plan but the differences vary from state to state. In most state plans you get some say in how your money is invested. Your investments are also tax-free. Withdrawals are tax-free as well as long as they are used to pay for qualified educational expenses like tuition, fees, and textbooks.
Coverdell Education Savings Accounts also allow your money to grow tax-free. They have the additional benefit of being able to be used for certain elementary and secondary school expenses, in addition to college tuition. Another big difference between an ESA and a 529 Plan is that you have a limit of $2,000 per year for an ESA.
There are also tax credits available for higher education expenses. For more information on tax incentives for education, see IRS Publication 970, Tax Benefits for Higher Education, available on the IRS website.
The Right Fit
Illustrated here were a great many choices to help you start saving for college. This is only an overview of the basics. Ultimately the plan you chose will need to be the one that best fits you and your family’s situation after you’ve done your research. You may choose to only use one option or you may use several. The important part is that you start saving now for the future you want.