how to save for college

It’s no doubt that planning your child’s college as a parent could be overwhelming, considering the high cost of getting into college these days, and this has left many parent thinking about how to save for their kid’s college.

The truth is the earlier you start planning, the better. All you have to do is begin a 529 saving plan that allows you to save for your child’s college and won’t affect your budget for the year.

According to a U.S. News annual survey, the average tuition for the 2022-2023 school year ranged from $39,723 (for private colleges) to $10,423 (for the public, in-state colleges). We know, as a parent, this price can be a little intimidating, but with the right saving plan, you can get it all right.

In this post, we have listed the best saving plan any parent could wish for, so I obliged you to keep reading.

Table of Contents

How to Save for Your Child’s College?

There are 8 Best ways to save up for your child’s college. Only pick the choice that is best fit for you.

Start a Roth IRA as a College Fund for Kids
Use the 529 Plan
Choose a Cheaper College
Open an automatic savings account.
Creating a savings strategy
Ensure you use your credit card—wisely
Invest in Mutual Funds
Using a Custodial Account

Also Read: How Much of My Paycheck Should I Save?

#1. Start a Roth IRA as a College Fund for Kids

Roth IRA is a retirement Account to which you contribute after-tax income to earn interest tax-free. You can withdraw the funds to pay for your child’s college. Roth IRAs are funded with post-tax dollars, and you can withdraw contributions — but not earnings — before you reach the age of 59½ without paying taxes or penalties. Before taking this action, consider talking to a financial advisor, as this may have potential drawbacks.

#2. Use the 529 Plan

Take advantage of the 529 saving plan. This is one of the most popular ways to have a college fund for kids; they are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code to help parents save for their child’s college

#3. Choose a Cheaper College

While figuring out how to save for your child’s college, you should consider other options, like finding cheap colleges with lesser fees. Public colleges, especially in-state public colleges, are less expensive than private colleges. Use College Navigator to find cheap schools that will fit your budget.

#4. Open an Automatic Savings Account

Setting up auto transfer is an excellent method for saving. You can set up an automatic transfer from your bank account to your 529 plan account. This will consciously limit your spending while increasing your savings. With a 529 saving plan, you can save as low as $25 from your paycheck each money

#5. Creating a Savings Strategy

Creating a saving strategy will help you in making the right savings decision. You must plan how much you wish to save for your child’s college and how to save up. You may take up a loan or set up automated monthly savings from your paycheck.

#6. Ensure you use your Credit Card—wisely

Credit cards can be a helpful tool for building healthy finance. Many credit cards also come with rewards such as cashback, Lower Interest Rates, Better Insurance rates, High Credit Limits, etc. If your credit card is not used wisely, it may affect your credit score, which will deprive you of all these benefits and, as such, will make it difficult for you to save for your child’s college

#7. Invest in Mutual Funds

Investing in mutual funds can help you save for your child’s college. A mutual fund is an investment managed by a financial advisor or bank investment specialists to purchase stocks, bonds, and other assets. This plan is best for retirement. You can use this to save money for your child’s college and pay other relevant bills. Mutual funds earnings may come from capital gains, dividends, or bond coupon payments.

#8. Using a UGMA and UTMA Custodial Account

Custodial savings accounts come in UGMAs and UTMAs (Uniform Gift to Minors Act and Uniform Transfers to Minors Act). They hold assets like cash, stocks, and mutual funds, but UTMAs can also have physical assets like real estate. There’s no limit to how much money you can put into a UGMA or UTMA; in most states, parents cannot simply transfer assets to their minor children but must transfer them to a trust. Your child must be 18 to use the money for college legally.

When to Start Saving for College?

The best time to start a college fund is when your child is born. With compound interest and regular investments made monthly or yearly, the funds can grow over a more extended period, and you don’t need to put aside as much each month or year to reach your savings goal.

What are The Types of Accounts for Saving for College?

There are 4 basic accounts for saving for your child’s college

529 plan
UGMA and UTMA Custodial Account
Savings account
Roth IRA

How Much Should I Save for My Child’s College?

Finding an “average” price for College is easy, but determining your college savings goal might not be easy, so you need to do some research. For example, if you choose to keep with a Coverdell ESA, you can only contribute $2,000 annually and must have income under $110,000 ($220,000 for married couples). Your saving goal should be $60,400 for a public, in-state college; $95,600 for a public, out-of-state college; and $118,900 for a private college.

Ways to Save While in College

Find a part-time job on campus. Many colleges and local organizations offer part-time jobs for students. Consider working at local shops, restaurants, or libraries to earn income.
Work closely with an advisor. Make smart choices for classes and try to graduate in four years or less.
Buy used books or share. Textbooks can come with a hefty price tag. Look around for discount bookstores or buy them used from your campus bookstore. If you share classes with your roommate or friends, offer to share textbooks.
Share the housing expenses. Having a roommate and splitting the rent is a no-brainer.
Eat at the dining hall. You’ll probably have to pay for a meal plan anyway, so use it for daily meals instead of spending additional money on groceries and eating out.
Use your school gym instead of paying for a private gym membership. Use the resources available to you on campus. It’s a great way to keep expenses down and meet other students simultaneously.
Don’t bring your car to school. Insurance, gas, and parking mean expenses. Does your campus have ridesharing, or is it near public transportation?
Consider graduating early. Take classes over the summer or add more courses during the year to finish a semester early, saving you housing costs.

Conclusion:

In conclusion, The best way to save for college might look different for each family, but one truth remains: it’s never too early to start.
Whether you prefer investment accounts with flexible spending, college savings are worth it and should be prioritized in every home.