Monday, January 7, 2013

The Fund: Sending Your Kids To College

This is a guest post by Nancy Evans, a freelance writer who enjoys writing about families and frugality.

Almost every parent wants to set up a fund that will help pay for their kids’ future college tuitions and bills. Unfortunately not all parents know how to do this in a way that will yield the best possible returns. If you want to make sure that fund is as healthy as possible by the time your kids are going off to college, here is how to do that.

Route #1: The Savings Account
Don’t just set up any regular old savings account at your bank. Ask if your bank offers specific college savings plans. If they don’t, find a bank that will. These accounts are ideal because they offer you great interest rates and are set up to be “non-dippable” until your child comes of age. It’s okay to set these accounts up with banks besides the one you run your checking account through. The goal is to get the best rates and terms possible.

Route #2: The PrePaid Tuition Plan
Spend some time learning about the private college 529 plan. This is a savings plan that allows you to pre-pay for your child’s tuition. You save up to pay for a semester, year or many years worth of tuition at the rates schools are charging when you open the account. Then, when your child is ready to go to school you “cash in” your tuition certificates and your child is covered. You don’t have to worry about the inflation rate that drives up tuition costs over time. It can save you hundreds of thousands of dollars over the long term and even better: you cannot use this fund for anything but college tuition.

Route #3: Combining Your Resources
There is no rule that says you can only choose one method of saving up for your child’s college funds. The pre-paid tuition certificates are great but what about books and other expenses your kids will have to worry about while they are at school? This is why it’s good to use a combination of savings methods to keep your child covered. Set up the savings account, set up the pre-paid plan. Later, after the savings account has grown you might even roll some of that savings over into a higher yield account or product (like a CD) that your kids won’t be able to access until after they graduate. This helps keep them covered in those early heady just-graduated days as well.

Saving up for college can be stressful. It’s easy to get competitive and worry about deadlines. Try to relax! Remember: some savings is better than none. If you want to get really gung ho with the accounts, you can encourage your kids to set aside some of what they earn through allowances, after school jobs, etc as well—this helps keep them invested in your future and fleshes out the funds even more!

See my disclaimer.

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