How to save for a child's college education

How To Save for A Child’s College Education? 11 Tips

How to save for a child’s college education? Third-level schooling is by far the largest price associated with child-rearing. According to a recent study, it costs roughly €42,000 to send a young person to college; however, if proposals to reinstate fees are carried out, this cost would drastically increase. MoneyDoctors.ie’s John Lowe looks into the matter. Let’s have some ideas on How to save for a child’s college education.

Consider the expense of sending a child that was born in America to Harvard in Boston, Massachusetts, if you still think that’s awful. $80,00 each term; $960,000 over 4 years!

It is understandable why recent US graduates have become used to repaying their own school loans throughout the first ten years of their careers. Here in Ireland, we’re not quite there yet.

So how do Irish parents with tight budgets cover this crucial price if we want to provide our kids with the same possibilities we may have had?

How to save for a child’s college education?

Some families might not have much money left over to fund their children’s education. Even if they are able to save aside the full amount of the monthly Kid Benefit ($140) from the time the child is born to the age of 18 (when it ends), the total amount accumulated would fall just short of €42,000—exactly the amount needed for a child to attend the third level without paying tuition.

The great majority of parents utilize the Child Benefit right away for its intended goal of aiding in the family’s long-term financial stability. Additionally, regular deposit accounts no longer qualify for 3% interest.

The average tuition for the 2022–2023 academic year varied from $39,723 (for private universities) to $10,423 (according to a U.S. News yearly poll) (for the public, in-state colleges). And as long as individuals continue to pay for education in the same way, college fees will continue to rise.

The key phrase to remember when saving for your children’s future third-level needs is START. Here are some ideas to consider if you’re looking for strategies to save for college:

1. Regular Savings Account

These types of savings accounts are offered by the majority of deposit takers. You can only make recurring monthly deposits of between €100 and €1,000 for a maximum of 12 months; lump sum deposits are not permitted. You are not penalized if you leave at any moment. Ulster Bank is now the best supplier, with a startling 0.85% annual interest rate (and that’s before DIRT tax reduction).

2. Silver Savings Account

GoldSaver is a standard savings account that allows for saving in the form of real gold bullion rather than euros, pounds, or dollars. With GoldSaver, account members may effortlessly acquire gold on a monthly basis via direct debit with a minimum monthly purchase of as little as €100.

Additionally, account holders have unlimited access to subsequent lump sum deposits. Given the precarious status of the world economy, gold, the volatility barometer, might turn out to be a genuine winner when your child starts college in 18 years.

3. Set up a 529 Plan

One of the greatest and most well-known methods to create a college fund for children is through 529 plans, which you are surely aware of. The saving programs, which are often run by state governments, promote saving for future educational expenses. They frequently are tax-friendly in that many states let you deduct your contributions from your state income tax, and the money won’t be taxed when you withdraw it for education.

The 529 plan in your state or any other state’s plan is open to contributions. All state plans are unique, much like snowflakes. Therefore, if you reside in Idaho but like Indiana’s idea, go for it.

4. Investing Regularly Saver

When it comes to the best returns over any ten-year period, there is no better asset class. According to a quote made famous by Warren Buffett, managed funds are one method to enter the stock market. The stock market is a mechanism for moving wealth from the impatient to the patient.

One insurance provider, Zurich, offers regular monthly savings plans with their five Prisma funds, which range from #6 high risk, emerging markets, technology and energy stocks, BRIC nations, etc. to #2 cautious, government bonds, and cash funds. You choose the percentage to invest in each fund. You can switch these funds between risky and cautious at any moment.

5. Consider investing in eligible savings bonds

You may purchase digital savings bonds from the Treasury at TreasuryDirect.gov as another approach to creating a college fund for children. They are no longer given out on paper.

According to Ryan Eyerman, a certified financial planner at E&M Consulting in Westlake, Ohio, “you may subtract the revenue from their yearly gross income for tax purposes if you redeem them and use the money to pay for higher education, except room and board.”

Naturally, there are certain limitations on this, says Eyerman.

Savings bonds provide several benefits, including being insured by the government and having almost no risk. On the negative side, the interest you’ll make may not be that high. Individual Series EE savings bonds now yield a fixed yearly rate of 0.10%. A part of the current composite rate on Series I savings bonds, which is 9.62%, is adjusted to inflation every six months.

6. Consider opening a Coverdell Education Savings Account

According to Eyerman, an ESA, also known as a Coverdell Education Savings Account, is “a tax-deferred trust account that can be used to pay for elementary, secondary, and higher education expenditures – room and board is authorized.” “As long as the money is used for educational purposes, earnings accumulate tax-free and dividends are tax-free.”

“All money must be spent by age 30,” continues Eyerman, “otherwise there may be tax penalties.”

However, there are other crucial factors to take into account. Depending on your adjusted gross income, a Coverdell ESA has a $2,000 annual contribution limit and is only available to families earning less than a specified amount. Currently, single taxpayers must have an adjusted gross income of $95,000 or less, and married taxpayers must have an adjusted gross income of $190,000. The restrictions are $110,000 for single filers and $220,000 for married couples if your income is more than that.

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7. Purchase mutual funds

There is no cap on the amount you may invest, and of course, the funds don’t have to be used for a college education. However, you will be required to pay annual income taxes on your earnings, capital gains taxes on the sale of your shares, and reduced financial assistance eligibility due to the mutual fund’s assets.

8. Open a Roth IRA to fund your children’s college expenses

But a Roth IRA isn’t for retirement, right? According to Laurence Namdar, a financial planner and the founder of Asher Levi Financial, a licensed investment advice business in Holly Hill, Florida, a suburb of Daytona Beach, the answer is typical “yes,” but it doesn’t have to be.

According to Namdar, “A Roth IRA is an effective vehicle for many taxpayers to invest after-tax money while sheltering returns and future growth from taxes for eternity.”

As with any investment, carefully weigh the advantages and disadvantages; for instance, family members can contribute to a Roth IRA but not a 529 plan. You should definitely talk about this with your financial adviser if you have one.

However, there is one major selling advantage, according to Namdar: “With a Roth IRA, parents already have those assets invested for their retirement, should a kid decide not to attend college.”

9. Borrow money from your home’s equity

It may be dangerous to take out a home equity loan to pay for your child’s education. It could even turn out well.

Whether on purpose or not, this is a prevalent strategy, according to Bentley. “Home equity, which is frequently a family’s biggest asset, is frequently utilized to pay for college expenses, according to Bentley. In order to access the equity if financial assistance or scholarships do not materialize, some families will prefer to pay down a mortgage rather than setting up a separate college savings plan.”

10. Contribute Funds to a Custodial Account

Custodial accounts, commonly known as UGMAs and UTMAs, are two types of savings accounts (Uniform Gift to Minors Act and Uniform Transfers to Minors Act). Although UTMAs can also hold tangible assets like real estate, they essentially hold the same assets, including cash, equities, and mutual funds.

You can invest an unlimited amount of money in a UGMA or UTMA, but this choice works best when the child is one whom you think to be accountable. When they turn 18, your child will be free to utilize the funds in the account lawfully for anything they choose, including college.

11. Get a long-term life insurance policy

According to Bryan Bentley, a financial adviser with Talon Wealth Management located in Roseville, California, this is a college savings plan technique that high-net-worth families often employ to offer tax-advantaged savings for numerous purposes, including higher education.

A permanent life insurance policy is similar to a standard life insurance policy, except a portion of the premium money instead goes into tax-deferred savings account instead of the death benefit.

Final thought

It’s not the ideal option for a college fund for kids, especially if you still have years left to save money for children’s education expenses. However, it could work if you don’t have enough money saved and are seeking a method to pay for tuition as well as housing and board.

To avoid having to take out as many loans, you should start a college fund for your children early. As with any investment, it’s usually better to start saving money as soon as you can, but this is especially true for college savings programs. I hope this article on how to save for a child’s college education was worth reading.

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