It is a parent’s job to set their kid up for success as an adult. One of the easiest ways to do this is by helping to pay for college. You do want your kid struggling to pay for their education for decades after graduating. The cost of college continues to go up every year, so you need to start saving money for college as early as possible. These are the four best ways to create a college fund for your kids.
Traditional Savings Account
The easiest way to start a college fund is by creating a savings account in your kid’s name at your local bank. You can add to this account whenever you have a little extra money. These accounts earn a small amount of interest with absolutely no risk, so they will only continue to grow as your kid gets older. You will also have access to the funds at all times in case of a family emergency.
If you want to grow your money at a faster rate, then you may want to consider a mutual fund. You can invest in mutual funds through a local broker or by creating an online investment account. The only downside to this option is that you will have to pay a large tax bill when cashing out your money. Make sure to keep the mutual fund in your name to avoid limiting your child’s financial aid options.
Coverdell Education Savings Account
The Coverdell savings account grew in popularity because it can be used to pay for schooling at any age. This tax-free account has a strict contribution limit of $2,000 per year. All of the money in the account will also automatically transfer into your child’s name when they turn 18. They are then free to use this money however they like after becoming a legal adult.
A 529 plan is another savings plan specifically designed for education expenses. You can contribute as much money as you want every year. You will also not have to pay any taxes when using the money. There are several safe investment options to help your 529 plan money grow over time. The only drawback is the money cannot be withdrawn unless used for education expenses.
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