One of the key goals many parents have is to create a college fund to ensure their kids can afford college. You don’t want to sacrifice your own retirement savings to do it, but it is doable if you plan smartly. If you want to get a good-sized college fund for your children, then follow these tips to get started.
Realize the Power of Time
One of the key concepts you must keep in mind when building a college fund for your kids is that you don’t have to pay an arm and a leg to do it. The power of time can transform small amounts of money into a huge college fund that will help out a lot. For example, consider if you put $100 a month into a college fund. If you achieved a modest eight percent annual return on this fund, that $100 every month would create a huge $48,000 fund for your children to use when they graduate from high school. Therefore, the sooner you can start the kids’ college fund, the better.
Stocks Are Your Best Bet
When it comes to creating a college fund, you will need to be aggressive to keep up with the huge pace of tuition increases. Tuition is rising much faster than the rate of inflation, and you want to invest mainly in stocks and mutual funds rather than bonds in order to keep up with these tuition increases. When your child is getting closer to graduating from high school, you can move much of the college fund into bonds in order to protect it from a downturn in the market.
You Don’t Have to Save Every Penny of the Cost of College
Don’t feel pressured to save the entire amount of the cost of your child’s education. You need to keep in mind that your child can cover some of the costs of college through loans, grants and scholarships. It is good to save as much as possible, but don’t allow the pressure of saving for college force you to make any risky investments.
529 Savings Plans
The best bet when it comes to saving for your child’s college education is to make use of the 529 savings plan. This college savings plan is completely free from federal and state tax, which means that you can build up your child’s college fund without having to worry about losing its value to the taxman. You can build a 529 fund up to a maximum amount of $200,000, which would allow you to cover $50,000 for every year of your kid’s college education.
Life Insurance for College
An alternative way to fund your child’s college education is to make use of a life insurance plan that includes a way to build a college fund. One of the most popular of these plans is the Gerber Life College Plan. This plan is a great way to save for college because it covers your children in the event that you die before they graduate from high school. Hopefully, that will not happen. If you stay alive until it is time for college, the premiums you pay will have created a college fund ranging from a minimum of $10,000 to a maximum of $150,000.
One of the most time-honored ways to save for a child’s education is by buying savings bonds from the U.S. Treasury Department. These bonds double the amount of money you pay for them in 20 years, but you would need to buy a pretty sizeable savings bond in order to put a significant dent in the cost of a college education.