The sooner you start saving, the more money you’ll have for your child’s college education.
However, there needs to be a strategy or roadmap for reaching that goal. Stuffing money under a mattress might seem like a strategy for some people, but it isn’t.
Here are some important things to consider before you get started:
What’s right for one family may not be right for another. A good way to decide on a roadmap for saving for college is to consider the pros and cons of different options.
Depositing money in a savings account is an easy way to build a college fund that relies on your being disciplined to make regular deposits.
Since access to a bank account also is easy, you will need to resist the urge to dip into your college savings for other things.
The account will earn interest, but don’t expect too much. Interest rates on bank accounts are at a historic low, (averaging just .50% over the past 15 year period).
Also, be prepared to pay taxes on the interest you earn.
Stock Market Investments
They can be risky, so you need to consider your tolerance for risk.
Whether you buy individual stocks or invest in a basket of stocks in a mutual fund, you may lose the value of money you’ve invested if the market dips.
If the market is doing well, you will likely make considerably more than in a savings account or with savings bonds. With college tuition growing faster than inflation, that’s something to consider.
When you sell stocks at a profit, your profits are taxable. Dividends on stocks also are taxable.
Alternative college savings plans, like the Gerber Life College Plan, offers a new way for parents to save for college that enables you to know exactly how much money you’ll have at maturity.
Benefit amounts start at $10,000 and go as high as $150,000 and are guaranteed (provided all premiums are paid and no outstanding policy loans).
The Gerber Life College Plan earns more over time than a low-interest bank account.
Over a period of 10-20 years, while you are regularly putting away money for your child’s college education, the College Plan also will protect you with life insurance.
So, if anything happens to you, your beneficiary will still receive the full amount you had intended to set aside.
A portion of the interest you earn is taxable. If plans change and your child doesn’t go to college, the payment money can be used for any purpose at all, with no penalty.
These plans offer Federal income tax breaks.
They are named after Section 529 of the Internal Revenue Code and sponsored by states or educational institutions.
The 529 plans come in two forms: pre-paid tuition plans (which lock in the cost of tuition and fees at today’s prices) and college savings plans (which let you place money in a professionally managed investment account).
Each state has different rules for 529s, including tax treatment and the lifetime cap on the amount you can invest.
The money in a 529 must be used for college expenses or penalties will be incurred. Because market and economies ups and downs can impact the value of your 529, they have an element of risk.
Buying U.S. savings bonds has traditionally been a way to save for the long term. Issued by the U.S. Treasury, they generally earn a bit more interest than a bank account.
Series EE bonds bought on or after May 1, 2005 are guaranteed by the U.S. Treasury to double after 20 years5, but you’d need a large sum of money to buy one that grows enough in value to cover college expenses.
No matter which strategy you use, saving early for college is what’s important. No one disputes that a college education is one of the best investments you can make for your child.
By setting aside even modest amounts while your child is young, you’ll watch the college dream become reality as your child grows.
“5 Ways to Build a College Fund” was provided by GerberLife. At Gerber Life, it is our mission to be the brand that parents trust to help them achieve financial security and protection for their families.
Visit contest.gerberlife.com today for the chance to win a $10,000 or $20,000 Gerber Life College Plan.
For more information on Gerber Life Insurance Company, visit www.gerberlife.com.