When it comes time for your child to attend college, you want to ensure there are sufficient funds saved for them to do so. While saving for college takes a great deal of dedication and hard work, it’s always worth it.
College savings can help your child avoid overwhelming amounts of student loan debt and allow them to enter adulthood on the right foot. Fortunately, there are a variety of ways you can save money for your child’s higher education. Let’s dive deeper into how to save up for college tuition.
1. Scholarships and Grants
Applying for scholarships and grants is a tedious, time-consuming process. But it can save your child a great deal of money on their college education. While scholarships can come from a variety of sources including businesses, individuals, and religious groups, grants are typically offered by state or federal financial aid that is given to a specific college or university. Encourage your child to apply for as many scholarships and grants as they can.
2. Community College
There’s no denying that a community college is far more affordable than a four-year college or university. So if your child begins their college career at a community college, they can save thousands upon thousands of dollars.
Although this may not be the most exciting option, it’s ideal if your child is a self learner or is unsure of what type of career they’d like to pursue. They can graduate with an associate’s degree and look for a job or transfer to a college or university eventually.
3. Financial Aid
Financial aid refers to any type of funding that can be used to pay for college. It may include scholarships, grants, loans, and work-study programs. To be eligible for most of it, your child will have to complete the Free Application for Federal Student Aid or FAFSA.
If the federal government determines your child is a candidate for need-based aid, they may receive grants or work-study dollars. In the event your child is ineligible for need-based aid, they may secure merit-based aid or scholarships for their academic, athletic, or artistic achievements.
4. Coverdell ESA
The Coverdell Education Savings Account (ESA) can help you save for your child’s college when they’re under 18. If you use the funds on qualified expenses like tuition and books, you won’t have to pay federal taxes on them.
While the Coverdell ESA may seem like a great option, there is one caveat to be aware of: You can only contribute up to $2,000 per year per child. Since college costs are rising each year, it may keep you from saving enough money.
5. Prepaid Tuition Plans
With a prepaid tuition plan, you can lock in tuition at current rates to cover college costs when your child is ready to attend college. You can contribute a lump sum or make regular installments.
When your child enrolls in college, the plan will pay the school directly with the money you’ve saved. It’s important to note that prepaid tuition plans aren’t available in every state and are only recommended if you believe your child will go to a state college or university.
6. Retirement Accounts
Although a Roth IRA is usually used to save for retirement, it can also act as a college savings tool. You can invest after-tax money and withdraw up to the amount you’ve contributed at any time for any reason without facing any taxes or penalties. A Roth IRA can give you the flexibility of allocating your funds toward college or retirement.
But the main drawback is that there are limits to how much you can contribute. These limits are $6,000 per year if you’re under 50 and $7,000 if you’re older than 50. Additionally, you may not be able to save in a Roth IRA if your income exceeds $139,000 as a single filer or $206,000 as a married filer.
7. UGMA and UTMA
The UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) are custodial accounts designed to hold and protect money for minors until they reach the legal age in their state. While they allow stock, bond, and mutual fund investments, they do not permit higher-risk investments like stocks.
You can invest as much money as you’d like with these accounts because there are no limits. In addition, the funds may be allocated toward anything, not just college expenses. Keep in mind that if you go this route, however, your earnings will be taxed once they exceed $2,100.
8. Brokerage Accounts
If you opt for a brokerage account, you’ll get to invest in anything you’d like: stocks, mutual funds, bonds, currency, or futures. This is a flexible option as you’ll be able to deposit and withdraw money at any time without penalty.
The most noteworthy downfall to brokerage accounts, however is that they don’t come with any tax advantages. You’ll be on the hook for paying taxes on any returns you earn. You may also have to make a minimum investment and pay management fees.
9. Savings Bonds
Since they’re secured by the federal government, savings bonds offer a risk-free way to save for college. You won’t miss out on any principal and your child won’t be able to access the funds until they’re older and ready for college.
While savings bonds may seem like a great choice, their returns are far less desirable than those of other colleges savings options. So if you want your money to really work for you, it’s probably a good idea to take a risk and opt for an alternative solution.
10. 529 Plans
A 529 college savings plan is the ideal way to save for college. Not only does it allow for tax-free growth and withdrawals for education-related expenses, it may qualify you for a partial or full tax deduction.
It’s a lot like a Roth IRA but better because there are no contribution limits and you can open one regardless of your income. If you open a 529 plan, you can choose from an age-based investment option or create your own portfolio.
Ready to Save with a UTMA account? Use the UNest App
If you’d like to start saving money for college tuition through a UTMA account for your child (or anyone else you love), check out the UNest mobile app. It’s specifically designed to make the entire process easy and enjoyable. You’ll be able to open an account and manage it from your smartphone or tablet. Download the UNest mobile app today!
This material is for informational purposes only and should not be construed as financial, legal, or tax advice. You should consult your own financial, legal, and tax advisors before engaging in any transaction. Information, including hypothetical projections of finances, may not take into account taxes, commissions, or other factors which may significantly affect potential outcomes. This material should not be considered an offer or recommendation to buy or sell a security. While information and sources are believed to be accurate, UNest does not guarantee the accuracy or completeness of any information or source provided herein and is under no obligation to update this information.