It’s never too early to save up for your child’s college education. Even just a couple of bucks can go a long way. That being said, there are other beneficial ways you can save up for your child’s college fund.
In matters as important as your child’s education, careful preparation is a must. You also have to determine the right investment tool that will help meet your needs. Here are a few options you may consider.
Try a 529 Plan
Most experts would recommend the use of 529 plans. These are usually tax-friendly; the investment earnings are free of federal taxes if the money is used for college expenses. You can also put money on a different state’s plan for flexibility.
This means that if you prefer a different state’s plan over where you’re living, you can invest there instead. Some 529 plans can even be opened with as little as $25. Opening one early and contributing every month will definitely benefit you and your child in the next few years.
Invest in an IRA
An IRA is usually associated with retirement, but that is not all it can be used for. It can also be for qualified college payments so long as the contributions have been paid for the last five years.
There are two kinds of IRA plans: traditional and Roth. The difference revolves around whether you pay taxes on the funds before you put money into the account.
For a Roth IRA, you have to pay the taxes upfront. Any money taken within the appropriate timeframe is tax-free. But if you’re using a traditional IRA, you must pay taxes on the withdrawn money.
Open a Coverdell Education Savings Account
This is a tax-advantaged type of investment that will allow you to contribute up to $2,000 a year to your child’s account. These funds can then grow free of federal taxes later on. However, this method isn’t available to everyone because you need to be under a certain income range to contribute to the account.
Check out UGMA Accounts
UGMA, or Uniform Gift to Minors Act, is a custodial account, meaning your child can have the chance to own stocks and mutual funds. But until they reach legal age, the account will be under a custodian for keeping. Moreover, since a UGMA isn’t a traditional college fund, the money doesn’t grow tax-free.
Another thing to consider is that a UGMA account counts against the student or parent when they apply for financial aid. Thus, the financial aid given to your child may be less than the usual amount.
Secure Your Child’s College Education
If you need help setting up money for your child’s higher education, contact our financial experts from Tostrud & Temp, S.C. in La Crosse, WI. We’ll be more than happy to help formulate a secure financial plan to cover all your needs moving forward.