It’s hard to believe that I just gave birth to beautiful, twin girls and I need to start thinking about their college funds. And let’s face it, its tough enough with the suddenly extra cost of having kids, let alone add in some savings. Unfortunately the cost of sending our kids to school continues to increase. And by the year 2028, four years at a private university will cost almost $350,000 and state schools as much as $116,000! Yikes!
But let’s try to not panic. Even doing something small now will add up in eighteen years. And a great place to start is a 529 savings account.
A 529 savings account is a state-sponsored tuition plans that earn interest tax-free (the amount varies depending on how the funds are invested), and some states even offer additional tax deductions as well as benefits such as bankruptcy protection and direct deposit. Although 529 plans are backed by state governments, they don’t require your child to attend school in-state, and you can invest in any state’s plan, no matter where you live. You can use the money for tuition, books, computers and other educational expenses.
Next decide how much you are able to set aside for this account. If you can save $10 a week from the day your child is born until her 17th birthday, you’ll have almost $14,000. $25 per week and you’ll have $34,000 in the account. And if you are able to save $100 per week, then you’ll have $300,000 in savings.
Yet be smart. Start with what you can, and you can always increase it later. But if you are worried that your weekly contributions won’t add up to much, here are a few tips for finding a little extra money:
1) Commit 50% of every unexpected monetary bonus to the college fund. Whether that’s your tax refund or a winning lottery ticket, put half of your unexpected good fortune into the 529 plan.
2) Host an annual yard sale. Sell your baby’s gently used or unopened gifts, toys and clothes once a year in a yard sale or through eBay, and whatever you earn for the day goes into the 529 plan. Some families can earn up to $500 in just one sale! Plus you’ll reduce the clutter in your house and teach your kids about business.
3) Let grandparents, godparents, and other relatives know that you’ve opened a 529 plan for your child. Sometimes you really don’t need all those toys at Christmas or birthdays. So instead of a ton of gifts, have your parents gift your kids a few gifts and put the rest of the money they would have spent into the 529 account.
Experts agree that it’s crucial to get in the habit of saving a portion of every paycheck into a college fund. However, never let saving for college trump your saving for retirement. Your child can always take out loans for school, but you can’t take out loans for retirement. If you are interested in learning more about 529 plans, check out collegesavings.org for more information.
Source: American Baby April 2011