Let’s face it, a college education is expensive and getting more expensive each year. According to the College Board, the average cost for a private college in the 2013-14 school year was $40,000, including tuition, fees, room & board. This does not however include spending money, transportation, etc. State Colleges are less expensive, especially if attending one in a home state, but even State Colleges are raising tuition aggressively to manage growing costs.
So what can new & expectant parents do to prepare for college costs? The first thing to do is relax. There is a full 18 years from when a child is born to when the first tuition payment is needed. Besides, all new parents face the same dilemma and somehow everyone finds a way.
Here are 5 practical tips to get you started saving for baby’s college education:
1. Start early. The sooner you start saving the more time you have to accumulate a good amount of money and the more time you have to take advantage of the power of compounded interest.
2.Open a 529 College Account. A 529 plan is a tax advantaged savings plan designed to encourage savings for future college costs. It is named after Selection 529 of the IRS code, and is legally known as “qualified tuition plans”. A 529 plan is an excellent choice given that money is allowed to grow tax free if used for education costs, and within some States the contribution is tax deductible. For more info, please visit: http://www.savingforcollege.com/
3. Adopt a regular savings plan. Saving over an 18 year period requires the discipline of a regular savings plan. Perhaps the easiest way to save is through a structured payroll deduction, which most companies offer. Investing regularly also offers the benefit of “dollar cost averaging”, especially if investing some or all of the money in the stock or bond markets.
4. Make lump sum contributions whenever possible. Give your child’s college savings plan a shot of adrenaline with periodic lump sum contributions. Bonus time and tax refund time are just two examples of when a family will find itself with extra cash.
5. Encourage grandparents to contribute in lieu of other gifts. Most grandparents jump at the opportunity to help with a grandchild’s college savings, especially as an alternative to buying unnecessary toys or clothing. Explain to them that you value a great education more than more stuff, and let them know that a contribution to a qualified college savings plan will have a much greater lasting value.