The cost of college tuition is growing every year. For those with young children, figuring out how to pay for it may seem like something you don’t have to worry about for several years. There are ways to start saving now, however, that can help make sending your child to college less intimidating.
As parents, you want your children to have the best options available when it comes to education. Unfortunately, that can carry a hefty price tag. Planning ahead and utilizing a savings strategy early in a child’s life can make paying for college less stressful.
According to the College Board, the cost of college tuition, fees, and room and board has increased steadily over the last 10 years, averaging a 3.2 percent increase per year. The average cost during the 2017-18 school year was $25,290 at an in-state public college and $50,900 at a private college. If you have an 8-year-old, who you expect to attend college by age 18, the annual cost of in-state tuition would balloon to more than $33,988 per year by the time he or she is ready to attend college. Multiply that by four years, and receiving a degree at an in-state public institution would cost well over $140,000.
Ways to Save for College
Thanks to scholarships, grants and other financial aid, such as work study programs, you may not have to pay the full price described above. Even with these options, an education does not come cheap. There are many ways to save that help your contributions grow over time. Each one provides unique benefits. Consider the following options.
- 529 plans: One of the most popular college-saving methods, 529 plans are state-sponsored programs that are normally managed by a financial services firm. Distributions are free from federal tax when used for education purposes.
- Coverdell Education Savings Accounts (CESA): Similar to 529 plans, CESA’s offer tax-free distributions when used for educational purposes, but CESA’s can also apply to elementary and secondary education expenses as well. CESA’s are limited to couples with adjusted gross income of less than$220,000 ($110,000 for individuals).
- Custodial accounts: Under the Uniform Gifts to Minors Act and the Uniform Transfers to Minors Act, a parent and guardian can put money in a trust, and manage that account as trustee until the child turns 21.
- Roth IRAs: The owner of a Roth IRA account is allowed to make withdrawals from the account before turning 59½ without being charged a penalty if the funds are to be used for higher education. But be cautious when using this option, as it will impact your long-term retirement savings.
There may be loan programs available to you as well, but be sure to fully understand the loan terms, including interest that will be due – and be careful not to take out more debt than you can afford to pay back.
Want to Learn More?
Contact Bank Midwest 888.902.5662 to learn more about ways to save for college or click to learn more about student loans.
Source: Iowa Bankers Association