As the cost of a college education continues to rise, saving as much as possible has become a necessity. Your family has many options to choose from to save for your children’s education, and the earlier you start, the more successful any savings strategy you employ will be. This is how much you can currently expect to spend on a year of tuition and fees for your child’s secondary education, on average:
|Public Two-Year College (in-district students)||$3,440|
|Public Four-Year College (in-state students)||$9,410|
|Public Four-Year College (out-of-state students)||$23,890|
|Private Four-Year College||$32,410|
These numbers may be a bit daunting, but planning for college can be done on any budget. Consider using one or a combination of the following common savings strategies:
- 529 savings accounts. These accounts allow you to set aside after-tax contributions that grow tax free, much like a Roth IRA but with more generous contribution limits. Funds can be used for qualified education expenses—mainly tuition, books, and room and board.
- Regular savings accounts. Saving accounts provide little interest and no tax benefit, but they are an easy, flexible method for setting aside cash.
- Roth IRAs. IRAs are not only for retirement, but can also be used for educational savings. A Roth IRA allows you the freedom to invest in countless stocks, bonds, mutual funds, and exchange-traded funds, and has great growth potential.
- CDs and U.S. savings bonds. These investments don’t provide very much growth, but the possibility of laddering can be an attractive feature for those savers worried about cash flow.
So, what should you do if you have been saving, but you’re worried the dollars aren’t accumulating quickly enough and you want to avoid falling behind? Consider these ideas:
- Find ways to reduce the cost of a college education. Be mindful of the four-year graduation rate and student debt averages of the schools your child applies to. Submit your financial aid application as early as possible for the best result, and look into saving by choosing a state school rather than a private one.
- Don’t insist on covering the entire college tuition. Your child need not take on crippling debt, but it is reasonable to expect him or her to pitch in.
- Remember that every effort counts. Automate saving to make it easier, and watch how small amounts add up over time. Don’t forget to add a portion of your tax refund to the college fund every year, and teach your child about saving and responsibility by requiring a contribution from any birthday money.
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