Before Saving For Your Child’s College, Know This!


What You Need To Know Before Saving For Your Child’s College.

We all know how expensive a college education is in today’s world. You may be ready to start saving for your child’s college because you know that even state schools tuition and living expenses have risen more than most of us can imagine in the last twenty years and there is no end in site. Private colleges and graduate schools put the cost up even higher.

With a high demand on getting a college education and students coming from all over the world to attend school, colleges and universities currently have little or no motivation to lower expenses for students.

If you are like most parents, you don’t want to see your kids saddled with the burden of student loan debt when they graduate college and begin their careers. To start saving for your child’s college early is smart and is the best way to ensure that the money will be available when its time for them to enter school. However, there are vital things to consider before you start.

Here are some things that are important to know before you start saving for your child’s college.


What to do before you start saving

Yes, it’s important to start saving for college early, but many experts say you need to place equal if not greater importance on your own retirement plans. After all, there are other options for paying for college, but your only option without any retirement savings is to a) keep working or b) get by on meager social security payments.  College can be paid for with loan programs, scholarships and grants. Retirement cannot.

Then there’s this to consider: Do you want to put your kids through college, only to become a burden on them later in life because your retirement savings run out? By making sure you’re going to be okay in retirement, you can save your own kids from financial strain down the line. Here’s a checklist to make sure you’re in good shape before you start saving:

Contribute at least 10% of your paycheck to retirement

Pay off high-interest loans (credit card debt, for example)

Get rid of your own student loan debt

Establish a rainy day fund with 3-6 months’ worth of expenses in case you lose your job

Create an “accident fund” to deal with unexpected, high-priority expenses like car repairs or medical bills

It’s like they say on airlines: Put your own oxygen mask on before helping others.
– via NerdWallet

Ready, Set, Save!

If you are ready to start saving for your child’s college you will want to learn about the different types of savings plans and their rules. This will help you make the most of every dollar saved and protect yourself and your kids from higher taxes and other complications.

Here is some good information to get your started on your research.

Opening a savings account in a child’s name may seem like a great way to give Junior a head start on a lifetime of thrift. However, it can come back to haunt families, especially when college years roll around.

In fact, choosing the wrong savings vehicle for your children’s future college cash needs could cost them thousands in avoidable taxes and missed financial aid.

“There is an asset protection allowance, or APA, that protects a portion of the parents’ assets, based on the age of the older parent,” when determining financial aid, says Mark Kantrowitz, publisher of and author of “Filing the FAFSA.”

“Don’t confuse the APA with the IPA. The IPA, or income protection allowance, shelters a portion of income. The parent IPA is based on family size and the number in college, and represents a basic living expense allowance.”

Meanwhile, students’ income and savings have a bigger, more negative, impact on the availability of financial aid than parental assets and income.

Because financial aid is determined based on income and assets from the year prior to applying for aid — in most cases, the student’s junior year in high school — students with large amounts of savings in their name could end up losing a hefty sum of free college cash.

Fortunately, there are several ways for parents to save that will not put their child’s future financial aid at risk. The following are 3 places to safely stash the cash: 3 ways to save

529 college plans.
UGMA and UTMA accounts.
Roth IRA.

529 college plans

One popular method is to save for college through a college savings plan.

Operating similar to IRA and 401(k) plans, 529 college savings plans allow parents to save for a child’s education tax-free through an array of investment options. Some age-based investment packages place funds in aggressive investments when the child is young, then automatically switch funds to more stable options as the child approaches college age.

These plans offer major tax advantages, says Craig Parkin, managing director at TIAA-CREF Tuition Financing, the investment organization that administers Kentucky’s state-sponsored college savings plans.

“The gains on the accounts are tax-deferred, and once the funds are used to pay for qualified tuition expenses, parents will never pay taxes on those funds,” he says.

Money in these accounts can be used for undergraduate or graduate studies at any accredited 2- or 4-year campus in the United States. Savings in a 529 plan belong to the parent, not the child.
– via

Have you begun saving for your child’s college yet? Will you begin to research the different options available to you?

Leave a Comment