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How to save for your child’s college education

September 24,2011 by: Dallas Browne

The primary goal of every parent is to save money for their child’s college education. Sadly, the ever rising cost of education has made it harder for parents to accumulate money for their goal. If you are a parent struggling to save for your kids read on to discover how you can do it, without pinching your budget or health.

A systematic savings plan and wise investment options can easily make your dream come true. The initial step towards taking the big leap is through understanding the various options available in the market, and making the best possible choices.

College scholarship programs offer a unique way to reduce and manage the burden of college expenses. Even though the country’s economy still recuperating from the aftermath of recession, yet there are programs and grants by the federal and state governments that are more than willing to help you out. It is ideal to find out your eligibility criterion and apply for the scholarship programs that you qualify for.

Start investing early so that it becomes easier to provide for your child’s college education at the right time, without the stress of seeking multiple loan options. You can begin your systematic investment plan by investing in 529 College Savings Plans. It is a savings plan designed by the Internal Revenue Code to encourage parents to begin saving for their wards brighter future. The prime feature of this plan is the numerous options of investment and the tax advantage that follows it. Legally referred as qualified tuition plans, a 529 plan is sponsored by state bureaus or educational institutions.

You can invest in two available plans under this scheme – Pre-paid tuition plans and College savings plans. Investors should wisely select the plans considering their future goals, because they might lose out on the potential tax advantages offered by their state. Therefore, selecting the best possible plan can be a delicate decision. Parents must make a comparison between historical returns, fees of each fund, age factor, and portfolio holdings to evaluate and choose the best fund options in the plan.

You should be able to make calculated decisions. For instance, your child just 3 years away from college should have a different asset allocation, as compared to the other who has twelve years remaining to enter college. With a529 plan you can secure your child’s future and save yourself the mental agony of bearing the increasing costs of college education.

Another unique way to create surplus funds for your child’s college education is through custodial accounts of UGMA or UTMA. These accounts are created by your brokerage firm or your bank for the benefit of your benefactor. The account may constitute savings accounts, certificates of deposit or money market accounts. These accounts do not limit deposits and neither imposes penalty for early withdrawal. Annual taxation and taxation on withdrawal amounts from these accounts is the major disadvantage. Further, the minor can completely control the account only upon reaching the age of 21 years.

Retirement Savings Accounts like the Coverdell Education Savings Account has been designed to offer parents to save for their child’s college education including elementary and secondary school.


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