Having a college degree is vital in today’s economy because a degree means higher wages, more career opportunities, greater job satisfaction and other benefits. But as college costs continue to increase it’s more important than ever to start saving for your children’s future as early as possible. These tips can help you get a head start and put your student on a path to higher education that leaves them with as little student debt as possible.
Put Yourself In The Right Financial Position To Start Saving
Parents are encouraged to start saving for their child’s college fund as early as possible, but before you do it’s important to make sure you’re in the right financial position. Paying off credit card or your own student loan debt, establishing an emergency savings account, as well as saving for retirement are important financial milestones to complete before establishing a college fund. Completing these milestones will help put you in the right financial position to start saving.
Research College Costs
With college costs continuing to rise, it’s important to make sure you’re saving enough to cover your future student’s tuition, living expenses, materials and fees. Researching and comparing the costs of attending public colleges both in and out of state with private universities and community colleges gives you an idea of what kind of costs to expect. This allows you to determine a time frame and budget.
Explore Different Savings Options
There’s a variety of different savings options available to start your college fund, and researching available plans will help you find the one that’s right for you. Education Savings Accounts (ESA) offer parents the opportunity to save $2,000 per year, per child that grows tax-free. While the money can be withdrawn tax-free when it’s ready to be used, you must meet a certain income limit to qualify and contributions are limited to $2,000 a year.
529 plans are an alternative to those looking to contribute more than $2,000 or don’t meet the income limits of an ESA. The high contribution rates offer the opportunity to quickly meet your goal and like the ESA, your money grows tax-free. While 529 plans provide parents great saving opportunities for a single child, restrictions may apply if the parents decide to transfer the funds to another child.
Find Out If You Qualify for Certain Tax Breaks
Qualifying for available tax breaks helps provide you with more money that can be put toward educational costs. If you’re eligible for the American Opportunity Tax Credit, you can get a credit of up to $2,500 that covers certain educational expenses while the Lifetime Learning Credit covers costs other than tuition and books including activity fees.
For help with questions about the best ways to save for your child’s future, contact an experienced accountant like the ones at Donohoo Accounting Services. Schedule a free consultation at 513-528-3982 or email us today. And don’t forget to check us out on Facebook, Twitter or LinkedIn for our latest updates!
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