Tuesday, November 24, 2015

How to Save for College for your Children

David Milberg - Saving Money for Your Kid's Education
One of the main concerns for parents as they raise their children is equipping their kids to succeed in life. For many people, this will require preparation while the children are still young to ensure that they have more opportunities by entering college. To allow your child to attend college before beginning a career, there are a few steps to follow to save for their education.

Open a 529 College Savings Plan

One of the most effective ways to save for your child's college education is to open a 529 college savings plan with investment options that are tax-free. There are a variety of aged-based package plans that are available with stable options that can then be used as the child gets closer to college. The parent is the account owner of the fund, which will ensure that the money is only used for their education once the child has access to it.

Purchase Prepaid Tuition

Many states throughout the country offer prepaid tuition to allow parents to purchase the college education at today's rates, which allows them to lock in a lower price before the rates increase in future years. This can be used for both public and private colleges to ensure that it can be afforded early on.

UTMA and UGMA Custodial Accounts

Both UTMA and UGMA custodial accounts offer tax breaks for children who are under the age of 18 that allow the first $1,000 to be tax-free and the second $1,000 to be taxed at the child's income tax rate when they're older. The remainder of the money that is placed into the account is then taxed at the parent's income tax rate. If the child decides not to attend college, the account can be used for other purposes. The child can have access to the account between the ages of 18 to 21.

Automate Your Savings

Throughout the years, it can be easy for parents to derail how much they save for their child's education due to emergencies or when finances are strained. Using an automated savings plan will make it easy to have an automatic deposit placed in the college savings fund that comes directly out of your paycheck. This will allow the fund to grow over time and will take less effort by avoiding having to put the money into the account each month.

David Milberg is an investor from NYC.

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