Let’s be honest. The cost of college continues to rise every year. So it’s a good idea to start saving for your child’s college education as soon as they’re born. You’ll give your money more time to grow and feel less stressed when it finally comes time to foot the bill. Starting a college fund for a baby is a great way to set your child up for success and help them avoid an overwhelming amount of student loan debt.
How Much Money Will You Need?
Before you start a college fund for a baby, it’s a good idea to sit down and figure out how much money you’ll need to save. Historical data shows that the cost of a college education usually triples over the 17 to 18 year period from birth to college enrollment.
Therefore, you’ll want to do some research and find out the average cost of an in-state college and out-of-state college the year your baby is born. Then, take these numbers and multiply them by 3. The figures you come up with will give you a rough estimate of how much college may cost when your child is ready to attend.
Chances are the figures you compute will be quite high. If you believe you can meet these figures and save for your child’s entire college education, great! However, if you’re overwhelmed by them, understand that you can pay for half or even a third or a fourth of your child’s college.
Remember that saving for college does not have to be all or nothing. Any money you can put aside for their higher education will help make a positive difference in your child’s future. Also, don’t forget there are plenty of scholarships and grants out there to make college even more affordable. You can help your child find and apply for them when the time comes.
Start a 529 Plan
While there are a variety of ways to save for college, a 529 plan is likely your best bet. At its core, a 529 plan is an investment account that grows tax free. It’s used to fund a number of qualifying educational expenses like tuition, books, and room and board.
Every state operates its own 529 plan, which often comes with tax breaks. So starting a college fund for a baby can also slash your tax bill. If you research 529 plans in your state, you’ll likely find two options: a 529 savings plan and a 529 prepaid tuition plan.
With a 529 savings plan, you can invest your contributions in a preselected set of mutual funds, just like you may already be doing with your 401(k) retirement plan. A 529 prepaid tuition plan differs in that it can give you the chance to lock in the current cost of college by pre-purchasing college credits at public state universities.
Once you create a college fund for your baby, realize that anyone can contribute to it. Let grandparents, aunts, uncles, and other relatives and friends know that you’ve opened a 529 plan and are committed to saving for college.
You can ask them to contribute to it for birthdays and holidays instead of buying toys, clothes, and other items they’ll outgrow. Even a $25 dollar contribution can do wonders for your child’s account. It’ll increase in value as they get older and help you meet your college savings goals.
While your child may not understand the benefit of their 529 plan and any contributions they receive when they’re young, they’ll be thanking you (and anyone else who has contributed) as they get older.
It’s Never Too Early to Start Saving for College
There’s no denying that a baby comes with countless new expenses. But if you make college savings a priority early on in their life, you’ll be able to significantly ease their burden of student loan debt in the future.
Ideally, you’d start saving for college when your child is born. However, if you’re unable to do so or missed the boat on that, no worries. You can start saving for their college education today and pay less taxes while you’re at it. All you have to do is open a 529 plan.
Ready to get the ball rolling and bring your child’s 529 plan to life? Don’t hesitate to download our easy-to-use app today! Our app makes the entire process seamless and enjoyable!
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