Before you know it, 18 years will go past you like a day. Then the next thing you know, your ward will be going to college. Unfortunately, rising tuition rates will be the bane of your investment. In this time, opening up a savings account isn’t going to be enough. You also shouldn’t be saving up when college years are near. In fact, you should be saving before that.
You could even end up picking up a savings system that could cost your child thousands of unavoidable taxes as well as missed financial aid. But we can help you get the best out of your investment. This article has all of the tools that will ensure the future of your child.
- 529 College-Savings Accounts
Tax breaks are one of the many positives of the 529 plan. There are no income taxes for earnings on investments in an account and investors can contribute after-tax cash. Like the IRA and 401(k) plans, the 529 college saving plans allow parents to save up for their child’s education with a variety of investment options.
There are some age-based investment packages that put funds in aggressive investments when the wards are still young. When the child closes to the age of going to college, they automatically switch to more stable options.
Every gain on the accounts is tax-deferred. Parents will have no need for paying taxes on the funds once all of them have been used to pay for qualified tuition expenses. The 529 plan is regarded as a parent’s asset because they are the account owners and can change the beneficiary whenever they want.
The accounts have a relatively small impact on the amount of financial aid a student could be eligible to receive. Unlike other options, there are also no income restrictions on who can contribute.
- Prepaid Plans
These are the plans that you can pay for a year of tuition ahead of time and effectively locking in the price. This plan prompts parents to pay for college sooner rather than later. The only downside of this plan is that they tend to work for in-state, public universities.
Prepaid plans especially work if you are worried about high tuition inflation, and can work either as a stand-alone strategy or along with a 529 college saving plan. Another downside is that parents aren’t liable for the same benefits if their child goes off to a school that is not covered by the plan.
- Coverdell Accounts
Coverdell Education Savings Accounts are said to be more flexible than the 529 accounts as they can be used to pay for a child’s expenses starting from kindergarten and all the way to college. If families prefer, they can open up an account both at 529 and Coverdell at the same time.
The flexibility gets even better like by the time the child is halfway through college, then they are eligible for a full college scholarship. By that time, parents can withdraw earnings in a Coverdell tax-free to pay for qualified educational expenses like private –school tutoring, supplies, and tuition.
- Roth IRAs
Parents who will be at least 59½ by the time their children are in college or grad school can apply for a Roth IRA. This acts as a good aid to 529 plans as parents can withdraw earnings that are free of federal income tax for anything they please after that age. As long as they are able to put money five years prior to it, they should have no problem.
If you are serious about putting your child through college and help them out of debt, then follow up on all the points laid out above.
Author Bio: Anna Marsh works as a pro blogger for UK Essay Writing Service firm. She blogs about various topics related to students and academic life. You can find her on Facebook | Twitter | Google Plus.