It is recommended that you start a college saving plan for your children the very day they are born. By putting a money away in an interest accruing, tax deferred account, by the time your child is 18 and ready to go to college they will have a sizable savings that be put towards not only their tuition, but living expenses as well. College can be expensive for parents and many times it is just not feasible if they have not saved up for a long enough time. Moreover, you don’t want your son and daughter to have to apply for a loan, because they might be in debt for a long time.
If you think about the numbers, it makes sense to start saving the day they are born. Even if it is just $100 a month until they turn 18, with the 8% to 9% interest and returns, this can add up to close to $48,000 to $50,000. It is recommended that you put this money away in an account that can both accrue interest and cannot be touched by the IRS. The last thing you want is for your child to be accepted to a college and then find out that you owe 30% of that savings to the Internal Revenue Service.
Another great incentive to starting a college fund early in their life is that friends and families can receive tax breaks on their investments if they make a donation. The IRS allows people to write off at least $13,000 a year on cash donations. For relatives, donating to your child’s college fund can be a great way to ease their own tax burdens.
It is also important to start saving earlier than later, because of inflation. If you think about it, in 18 years, the average 4-year college tuition, including room and board, will cost up to $500,000. This might seem like a lot of money now, but in the future everything will even itself out, but saving a little bit starting on the day your child is born will greatly contribute to covering the costs of your child’s future tuition.
There are also many accounts that you can ask your banker about that will best help you save the most money for your child’s tuition. Some of these accounts will have higher interest rates, but bigger penalties for early withdrawal. You want to weigh all your different options before you put a single penny in a savings account.
In the end, saving on the day your child is born, or at least a few months before, is the smartest way to have a big enough nest egg for when it’s time to pay for their college tuition. And before they get to college you can prepare them by sending them to good school and making sure they have great tutors to help them with schoolwork. If you are in New Jersey, you can search for Teaneck tutors, or you can search for reputable tutors almost anywhere else in the country too. All you want to do is make sure they get into a great university and make sure that they are fully prepared on the day they get there.