Becoming a new parent brings new financial responsibilities. You'll probably want to purchase life insurance so that you know your child can sustain a future in the event of your untimely death. With rising tuition costs, it’s also important to set aside money so your child can attend college when he or she graduates high school in about eighteen years. That time will arrive sooner than you think!
If you're wondering where to start, then you've come to the right place. In this article, we discuss some tips to get you started saving for college for your new baby. Keep reading to learn more.
5 Tips to Secure Your Baby’s Education
The best way to save for college is to get into the habit of saving. There are a few different ways to start saving for college specifically. Depending on your financial situation will also depend on which savings plan is right for you and your family.
529 College Savings Plans
A 529 account is a great way to save cash for your child's college tuition and let it grow tax-free. Once it's time to withdraw on the funds, you won't be taxed as long as the money is used for higher education.
Prepaid Tuition Plans
You can also invest in a prepaid tuition plan that allows you to pay tuition at today's prices. One drawback is that the tuition plans are administered by state and may only be redeemed at public colleges and universities within that state.
Coverdell Education Savings Accounts (ESA)
A Coverdell ESA is similar to an IRA, but it's used for education purposes. You'll be allowed to make a maximum contribution of $2000 per year and the money grows tax-free over the span of eighteen years, give or take. Neither the contribution nor interest is taxed upon withdrawal as long as the funds are used for education purposes.
A custodial account is basically a savings account that you control on your child's behalf. This occurs until the child turns 18 or 21 depending on where you live. You can deposit cash and other securities throughout the term of the account.
Though not the most obvious approach, some life insurance policies can help protect your family in case of an unexpected death while at the same time offering a cash payout. If you purchase a certain type of whole life policy for yourself, with your child as a beneficiary, you may be able to use the cash value of the policy when your child turns 18. A whole life policy can be cashed in and used to pay college tuition. If you’ve been paying on it for 18 years, the savings portion will likely have grown and will be a nice little sum for your child. One of the benefits of whole life is that the premiums are often fixed - meaning that your payments will be the same.
The best way to save for college is to start doing it as soon as your little one enters the world.
While it may be difficult to know what the cost of tuition will be when your child is ready to enter college, if you start saving now, there will be enough to get started.
Would you like to talk with an independent insurance agent about a Whole Life policy that might help you save for your child’s college tuition? Contact a Give Your Kid a Millionagency partner near you for a free quote.