The following post is by MPFJ staff writer, Chonce. You can read more articles by Chonce over at her personal blog, My Debt Epiphany. Enjoy!Â
Paying for college for a child is a long-term expense and goal a lot of parents strive to achieve to reduce the amount of student loans their son or daughter has to take out. Student loan debt is a big issue in today’s society and it’s no secret that without it, young adults can get further ahead financially during their mid and late twenties.
When I was ready to attend college, my parents didn’t have any money set aside to help me pay for my education, but as a first generation college student of a low-income household, I took advantage of many scholarships and financial aid options to lower my out-of-pocket costs and loan amounts. Even though I accumulated some student loans during college, it’s nowhere near what I could have taken out.
Now that I’m a parent, I know my son will not have the same government benefits that I had when it’s time for him to attend college and with inflation, tuition will most likely increase over the next 10-15 years.
While a state 529 savings plan is always a superb option when it comes to saving up to fund your child’s college education, not everyone can take advantage of this option for various different reasons. Here are a few alternative ways to save for college.
Coverdell Education Savings Account
While 529 plans are a great way to build your investment portfolio and provide some nice tax benefits while allowing you to set aside money for your child’s college education, they have limited investment options and promote high-cost mutual funds.
On the other hand, Coverdell Education Saving Accounts have very little restrictions on what type of investments you can make and they allow the same tax-free educational benefits that 529 plans provide. Even though Coverdell accounts have a lower limit on contributions, it could be ideal for parents who don’t have a lot of extra money to contribute but still want to set aside something for their child.
Roth IRA
Roth IRAs are popular tax-advantaged retirement savings vehicles that can also be used as a college savings account. The money you contribute to a Roth-IRA gets taxed so that you can withdraw it tax-free. While there are income and contribution limits, you don’t have to wait until you are 59 ½ to withdraw funds. You can withdraw funds for educational expenses in as early as five years after you begin contributing. With a Roth IRA, it’s best to start setting aside money early and maxing out contributions each year.
Real Estate
Can’t set aside much now but still want to help your child cover expenses? If you are interested in real estate, you can attempt to rent out a property to help cover your child’s educational expenses in rapid amounts.
I’ve heard of some parents who deliberately purchase an investment property with the intent of paying off the mortgage in time for their child to attend college so they can rent out the property and receive passive income to contribute each month. If you have extra space in your home, you can also rent out a spare room as well for extra money.
Prepaid College Tuition Plans
If you are sure without a shadow of a doubt that your child will attend college, you may want to look into prepaid tuition plans. Prepaid tuition plans is a type of 529 plan that allows you to lock in tuition rates from state colleges now to avoid having to pay increased tuition rates in the future.
Prepaid college tuition plans are only available in a select number of states and vary from state to state with their own pros and cons depending on where you live, but if you are willing to save money on your child’s education now by locking in a payment and tuition rate, you just need to have your child attend a specific state school that participates in the program to reap the benefits.
Gerber Life College Plan
The Gerber Life College Plan is like a high-yield savings account for your child with a guaranteed positive growth rate. Parents can choose to contribute anywhere from $10,000 to $150,000 and contribute monthly until their child is ready to attend college. When you open an account, Gerber Life discloses how much money it will have at the maturity date.
The one downside of this option is that once the balance in your account grows, the income it generates can become taxable. On the flip side, what’s nice about this option is that your child doesn’t have to use the money for educational expenses if they choose not to go to college and start their own business or choose another path. Nothing is worse than sacrificing to set money aside for your child to attend college only to find out that they have a different opinion on what they’d like to do.
Start Small and Contribute What You Can
Saving for college takes a lot of time and persistence. It may be difficult at first to squeeze extra money out of your budget to contribute to investing in your child’s future but getting them off to a good start upon adulthood should always be the end goal.
Consider which option will allow your money to grow safely and generate a nice return. Then, start making small contributions and gradually increase them overtime. If your child receives monetary gifts or allowance from time-to-time, take a portion of their earnings and contribute it to college savings. Every little bit counts and what you save now will allow your entire family to carry less of a financial burden in the future.
How about you all? Have you started saving for college for your child(ren) yet? What are some of the ways you are saving?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/68751915@N05/6629054127/
