As a parent, you know one of the most significant expenses for your children is their college education, so you may want to open a college savings account as soon as you can to cover this cost in the future. The cost of sending your kids to college seems to rise each year, so you may wonder how you’ll ever afford it when the time comes. The key is to start saving as soon as possible and be repetitious in your saving habits.
There are many programs and college savings accounts available to help you set money aside for your child’s education. Still, you need to know which program best suits your needs and particular financial situation. You can be successful with a bit of help.
When to Start Saving for College?
According to USA News, with the average cost of a four-year college running an average of $9,687 per year at an in-state institution, you need to start saving as soon as possible. Whether your child is in diapers or middle school, it’s never too early to begin saving for their future education and goals.
The good news is that there are ways to save and not pay taxes on the money you save, like UNest tax-advantaged investment account for kids. You can start saving as early as you want with whatever amount you can. And as your child grows older, you can increase the amount you save each week, month, or year in sync with how much money you make. You can even find plans that put money into the savings account when you buy everyday items.
Choose the Right College Savings Account for You
You have a unique financial situation, and it seems to change every few years. You get raises, a new job, or lose one. This makes it essential that you find the correct account to maximize your savings to ensure you can afford to send your children to college.
With so many types of educational savings plans, you need to know the ins and outs of the various plans before making a decision. It’s a good idea to select a couple of savings programs that sound good and then talk with your partner to make a final choice. Here’s a look at some of the most popular education savings plans:
1. Traditional Savings Account
You can open traditional savings account with a small deposit at almost any bank or credit union. If you use the same bank that you have a checking account, you might schedule automatic deductions from your checking to savings.
This type of account allows you to make money from the savings account at any time, usually without a penalty. However, you will pay taxes on any money you make, and you may find that the interest rate is really low.
If you can consistently save and not withdraw funds, you may find that other types of accounts can help you make more money for your child’s college education.
2. UGMA/UTMA Account
The Uniform Transfers to Minors Act (UTMA) and the Universal Gifts to Minors Act (UGMA) make it easier for you to transfer college funds to your minor children without first creating a trust to avoid the tax implications. These types of accounts allow you to place money in them, and then when it’s time for your minor child to start college, you can use the funds to pay their tuition until they become adults.
You can invest the funds in the account and maintain control over them until your child becomes an adult. When your child reaches the age of 18, the accounts transfer to their names.
3. General Investment Account
With a general investment account, you can save for your child by investing in the stock market, mutual funds, and bonds. However, there aren’t any guarantees. You may lose money if you don’t invest wisely. Also, if you make money on your investments, you’ll need to pay taxes on them.
While this is a liquid account, you may pay penalties or brokerage fees if you pull money out. Also, you may find that your stocks or bonds aren’t worth as much at the exact moment that you want to cash out some of your investments. This savings plan is a little riskier than other types, but you can see your money grow if you invest wisely.
4. Education Savings Account
An Education Savings Account is a savings account specifically designed to help you save for your child’s college education. It’s set up as a tax-deferred trust, which means you don’t pay taxes on the money until you need to spend it on educational expenses.
The child must be aged 18 years or younger to open this type of account, and you can only save up to $2,000 per year for each child covered through the trust. The United States government created this plan to help families plan for their children’s educational futures. However, once you start using the funds to pay college tuition, you’ll need to pay taxes on your earnings.
5. 529 Savings Account
Similar to the Education Savings Account, the 529 Savings Account was also created by the government. However, you can place as much money as you can each year into it. Also, the funds can be used to pay off up to $10,000 in student loans. You can also use some funds to pay for apprenticeship programs approved by the U.S. Department of Labor.
On the downside, you may need to pay brokerage fees when you set up the investments. Your investments aren’t guaranteed to make you money, so you may lose your investment or see it fluctuate depending on the investment market.
6. UNest Tax-Advantage Investment Account For Kids
UNest is a mobile app that allows you to open a tax-advantaged investment account for your children that will enable you to invest money for your children and help them achieve their future goals, including education and college savings. It offers a variety of benefits, including:
- Set up automatic payments to your investment account
- Enlist family and friends to invest in your child’s future
- Choose the investment profile that best suits your goals from cautious to riskier
- Earn additional investment money through everyday purchases
- Use saved funds on more than college payments, such as your child’s first car or first home
- Program to help you choose the best options based on your child’s age and future days
- Low monthly fee
With UNest, you can create an account for your children with just a few clicks on your phone. You can save enough money to send your child to college as long as you research your options and choose the plan that works best for you. Since college educations are necessary and expensive, you need to take your first steps now.