Saving for Your Child’s Education

Now that your family is growing, you are probably looking forward to giving your child the tools to have a wonderful and successful future. In particular, you may be interested in providing financial support for your little one to go to college or university. Unfortunately, the costs of post-secondary education can be quite large, and many families find it impossible to take on these costs when it comes time for their children to head off to school. However, by investing early in your child’s education, you can help to ensure that your little one can go to the college or university of his choice.


Why Save For Post-Secondary Education?
You may be wondering why you should start saving for your little one’s college or university education when she hasn’t even started to talk or walk yet! Well, the costs of education are already quite expensive and in the future, you can be sure that the price of tuition will only increase. In fact, by the year 2020, yearly tuition rates for an in-state, public college or university are expected to be in excess of $25,000. That means that it could cost more than $100,000 to pay for your child to earn a four-year degree! And if your child has her heart set on attending an out-of-state or private school, you can expect to pay even more. And don’t forget that post-secondary education has a lot of hidden costs, including:


  • room and board
  • books
  • transportation
  • equipment


This can push the grand total for your child’s post secondary education to be in excess of $150,000!


How To Start Saving

There are a few steps for you to undertake when it comes to forming savings plan for college or university:

Know When To Start
It is probably going to take you at least 15 years to save up enough money to pay for your child’s education. So if your child is going to head off to college or university when he is 18, you should probably start saving by the time he hits his third birthday. Some savings plans take longer, while a few options pay off sooner.

Make a Financial Plan
Planning is essential when it comes to saving money for post-secondary education. Here are some tips to keep in mind for your plan:


  • Identify how much money you will need to send your child to school for four years. Be sure to budget for essentials, like books, room and board, and transportation.
  • Decide on the type of investments you will need to make in order to meet this financial requirement. You are probably best off finding aggressive investments that will provide good returns. Avoid low-interest savings accounts.
  • Monitor your investments regularly. Even though you don’t need the money for 15 years or so, it is necessary to make sure that your investments are providing some type of return. Adjust your investment portfolio when necessary.
  • Begin to shift your investments as your child approaches college-age. This will ensure that you won’t lose any of the money that you have worked so hard to save.



Ways to Save For Education

There are a number of popular ways to save for post-secondary education in the United States. Talk with your financial advisor or your local government office to find out more about them.

Education Savings Accounts
Formerly known as education IRAs, education savings accounts are accounts created to help parents pay the costs of primary school, high school, and higher education. These accounts allow you to invest money, tax-free, on behalf of any child under the age of 18. These savings can then be put towards tuition, books, supplies, and other school-related expenses. Education savings accounts have an annual contribution limit of $2,000 and must be withdrawn within 30 days of the beneficiary’s 30th birthday. If the beneficiary decides not to go to college, the money will not be returned to the investor. Rather, it will become the property of the beneficiary. Anyone can contribute to an education savings fund as long as their gross annual income is less than $110,000.

529 Plans
529 plans, named after a section of the IRS code, were also designed to help parents save money for their child’s future tuition. Organized by the state and run by individual investment firms, 529 plans are designed to help make the rising costs of post-secondary education more affordable for all parents. There are two types of 529 plans that are available:


  • Prepaid Tuition Plans: Prepaid tuition plans allow parents to lock in on today’s tuition rates. Parents buy tuition units, either with a one-time lump sum or in monthly installments. This money is then pooled with money provided by other participants, and invested. The state then pays the balance of the tuition costs using these earnings when it comes time for your child to go to school.
  • Tax-Deferred Savings: Tax-deferred savings plans allow parents to save money for education without having to claim earnings on their yearly tax claims. Instead, tax is not paid until the money from the 529 account is withdrawn to use for educational purposes. At this point in time, tax is levied at the student’s tax rate.


Anyone can open a 529 account – there are no income restrictions – and the account can be opened for almost any beneficiary. Unlike an education savings account, there is no time limit with a 529 account, and the account can be rolled over to other accounts should your child choose not to go to post-secondary school. Additionally, the account is never handed over to the beneficiary; instead, it remains in the control of the person who opened it at all times. Should you choose to withdraw your money for purposes other than post-secondary education however, you will have to pay a 10% penalty and all applicable taxes.