Saving For College

If you have children, it is important to save for their college education. While it is likely they may qualify for some type of financial aid, not everyone does, and tuition can be cost-prohibitive. The key to saving for college is to start early and invest wisely, earning interest whenever possible.

People often get busy or encounter unexpected circumstances that require them to forgo savings. They later find themselves scrambling to find the money they need when their child is in high school. By starting early and planning, you can ensure your child has the money they need to attend college.


Look into a College Saver Certificate

The College Saver certificate is an excellent place to start your child’s college saver plan. The good thing about this plan is that it’s relatively inexpensive. Just $25 gets the account started, and after the account reaches $250, your child can begin earning dividends, which can be reinvested back into the account for even more savings.

Also, the account comes loaded with special features. It renews automatically every year. It’s also possible to make as many deposits as your child likes, as the account is open to unlimited deposits.

Unlike some other college savings accounts, the College Saver Certificate does not specify the type of school your child must attend. He or she may choose college or university and still qualify. Keep in mind, however, this college saver account requires parental consent and signature as a joint owner in order to be eligible for savings and benefits.


Start a 529 Plan

Another option for a college saver plan is the 529 plan. These plans are state government-run and offer tax-free withdrawals for educational expenses. One of the best things about the 529 plan is the opportunity to invest after-tax money and earn investment gains. They mainly consist of diverse stocks and bonds offered at low cost to savers.

If you’re looking to invest large amounts of money at a time, this plan is a good choice. These accounts allow high contribution limits, and perhaps the best feature is that the funds are never taxed as long as they are used only for education expenses. This includes tuition, books, fees and living expenses such as room and board.

An added benefit is the Gift of College program. It allows friends and family members to assist with your college savings plan. They can easily contribute directly into the account simply by registering at the website

It’s important to note that although the contributions to the program are tax-free, there is a 5 percent processing fee that runs up to $15 per contribution. Keep in mind, however, that 529 plan rules and regulations vary by state. Be sure to check your state laws before getting started.


Use your Roth IRA

Yet another college saver plan is the Roth IRA. These accounts are somewhat versatile in that they offer tax- and penalty-free withdrawals for educational expenses, but any unused money may be saved for retirement.

This a great option if you’re unsure if your child will in the future change his or her mind and decide college is no longer on the radar. This dual-purpose route also makes for an excellent option for parents whose employers offer Roth IRAs in their benefits package.

Like the College Saver Certificate, there are no requirements regarding the type of school a saver should attend. Any college or university will do. Also, like the 529 plan, it’s possible to earn investment gains and contribute after-tax money with Roth IRAs – an added plus for those looking to grow their money while saving.

Roth IRAs do have their limits, however. Funds for educational expenses can only be withdrawn penalty-free after five years of saving. Also, these accounts are subject to annual contribution limits ($5,500 annually and $6,500 annually if you’re over 50).

Be sure to check IRS rules during your pre-planning phase to ensure your regular contributions fit the contribution caps and to avoid any penalties and fees on early or non-education related withdrawals.


Save smart for college

Every child thinking about college needs a college saver plan. The sooner you get started saving, the better. There are some options to choose from. Each type of saver account has a number of features.

Take the time to do your homework and find a fit that’s right for your college plans and financial goals. With a little investigating, you should be able to find a college saver plan that puts you and your child ahead of the game and off to a great start for college.