15 Apr Financial Planning for Your Child’s Education
In today’s economy, the responsibility of raising a child can have your mind racing with a thousand thoughts on how you will be able to afford anything from diapers to diplomas. As a parent, your main priority is ensuring that your child has the best opportunities provided for them, including a quality education. However, you may be wondering how you will actually be able to afford to pay for your child’s education or even where to start. We have provided a few tips on when to start saving as well as ways to save for your child’s future.
Tip #1: There is no such thing as too early
When it comes to saving for primary or secondary school, you can never start too early. According to Bankrate, only 56% of parents are saving on average about $18,000 for their child’s education which doesn’t even cover one year’s worth of tuition, room and board, and other college expenses. This could be extremely difficult for parents trying to save for more than one child. The best method would be to set aside a savings fund immediately when your child is born. Even if it is a small amount, it will begin to add up over time and eventually reflect the years of saving and interest accrued and will help out enormously when it’s time to pay the education bill.
Tip #2: 529 plans to the rescue
Many parents have never heard of a 529 account. This is one of the best investment tools to help ease the worries of saving for college. A 529 account is a college savings account that allows parents to make constant contributions to the account, and when the time is right, withdraw all the earnings tax-free as long as it is being used for education-related expenses. Parents do take a small risk when opening a 529 account, in the chance that their child decides not to go to school; however, parents can change the beneficiary, in case another child or themselves decide to apply to college. A great method to start contributing to this account is to see if your employer offers payroll deductions and have a portion go of your funds go directly into that account.
Tip #3: UGMA and UTMA accounts
UGMA and UTMA stand for Uniform Gift to Minors Act and Uniform Transfer to Minors Act respectively. Unlike a 529 savings account these two saving accounts allow some freedom in how the earnings can be spent. The funds do not have to necessarily be spent on college expenses in the chance that your child decides they do not want to attend school. Another difference between these accounts and the 529 accounts is that after the first $1,000 saved, the remaining amount is subjected to being taxed. This allows the child a bit more freedom than the parent, but still is a great savings vehicle for parents to use for their future.
Tip #4: Saving, it’s a family affair
All the responsibility doesn’t have to be solely on the parent. Your child can also help contribute to saving for their education because ultimately the money will be going to them. This can also serve as an early and valuable lesson on financial literacy and money management. Sitting down with them and having a discussion on some of their college interests can help you both gage how much everything will cost. During their summers when they are working at the pool or babysitting the neighborhood kids, encourage them to budget their earnings and put some of their money into their college savings account. It can make things much easier when both you and they are contributing and investing in their future. They will thank you for it later.
The Bank of the Lowcountry understands the struggle that comes with providing the best for your child’s future, and in any way we can help, we are happy to. If you have any questions or would like to open a savings account for your child, please contact us at (843) 549-2265.