Want your kids to complete higher studies? Whether you have a child or plan to have one, you should start planning and saving money to complete your kid’s higher study? Why so early, time is in hand? Yes, time is in hand, but the amount is not. And with time the college fees will only increase, can you imagine what will be the amount after 20 years or more? So it’s time to start saving. How to save money for college for a child?
Here are the 5 ways of how to save money for college for child. Interested in knowing about them? Scroll down and run with me.
How To Save Money For College For Child
These days college study costs so much that any middle-class family even gets tired of their savings and hard-worked money but couldn’t pay the total amount. So think, what about the poor ones? And you don’t know when your financial status will change, so it’s better to start saving now, so you can let your child complete their studies even if your financial status isn’t so good. Let’s know some ways of saving money for college for children.
- Traditional Savings Account
This is the popular way of saving money that is free of risk and interest is significantly lower. Thi savings account comes with 2% interest per year. You can withdraw the money any time you want and use it for any reason, be it your health issues, other expenses, or college fees. But this is not the perfect saving option for college savings. Most people use this account as it’s safe. If you have lots of money and don’t want to invest or want interest but want to save for your child’s college education, you can save money in a traditional savings account.
- 529 Saving Plan
529 is the special savings account for education savings. It’s a tax advantage saving account that is a 5-year gift averaging. The money of the account is after-tax money; There is no income restriction on 529 plans. You can withdraw this money only for education purposes. Almost all states have 529 plans.
The students who are listed as beneficiaries can enjoy this 529 service. Students can withdraw $10000 in a year to pay the tuition or $10000 per beneficiary or borrower to pay the loan. This account allows you to maximize your savings amounts. Two-thirds of the tax deduction is contributed to these 529 education accounts.
So open one account for your child and start putting money in this account. The sooner you will open an account, the more money you can save for your child’s education.
- Education Saving Account
Education saving accounts allow parents to contribute $2000-$5000 per year as the maximum amount after taxes. This money is tax-free, and students only can use this money to complete their higher studies. You can open an education saving account before your child is born; if not, whenever you want. But the sooner you will open this; the more money will be saved for your child. You won’t have to pay tax when you withdraw this money. Its tax-free savings encourage the students in higher education.
- Roth IRA
Roth IRA is another tax advantage account. You can save money on this account for two purposes. This account allows you to put some more money into your retirement savings for your child’s education. Your child can withdraw this money for their higher education, or if they skip higher education, they can keep the money for retirement, or you can withdraw the money for your use.
You can’t contribute more than $6000 a year to this account if you are under 50 years. If you withdraw this before you turn 59, you will get the amount without penalty, but you have to pay tax in that case. The same goes for education; if you leave the education in half, you will get the money but have to pay tax.
Just like the 529 accounts and ESA, this Roth IRA account is also tax-free when you follow the rules. Students can use this amount to pay off their student loans also after they graduate.
- U.S. Savings Bonds
It’s one kind of government bond. You can buy these bonds for 50% of their worth and then redeem them to get the total amount after 15-30 years. The interest you will get on this bond is totally tax-free, with no state tax, local tax, or federal tax.
Students can still use this money to pay for their higher education expenses if they have enough money to bear the expenses. But if they don’t use this money to pay school bills, in half they have to pay the tax on earning interest. This bond is safe, and you can withdraw it just after the money is cashed in.
Saving money for college for a child is the responsibility of every parent to ensure their child gets higher education. Sometimes the parents meet with an accident or die or can’t bear the expense of their child’s higher education. In that case, savings money can help the child to complete their higher education. To learn how to save money for college for children and start saving money today for your child’s higher education and a bright future.