Today’s college students are tomorrow’s parents. They’re also a demographic with student loan debt that continues to climb, and the cost of higher education continues to rise. The cost of raising a child from birth through college can be staggering, but it doesn’t have to break your savings or your budget. Saving for your kid’s future is important. It can help them pay for school and give them a head start on their career and life. Children can be an expensive proposition, but there are things you can do today that will help you save money in the long run when they go to college. Read on to learn more about how much you need to save for kids’ college and how you can get started today.
How much do you need to save for kids’ college?
The cost of college has increased by 5-10% every single year since the 1980s. And while it’s true that there are some government and non-profits that offer assistance to those who need help with tuition and other school-related expenses, the fact is that most families need to come up with the money to pay for their child’s education themselves. It’s estimated that it will cost $245,000 to send your child to a state university and $445,000 to send them to a private school. That’s a lot of money! But there are a few ways you can go about saving for it.
Estimate how much you’ll need
Saving for kids’ college can be a daunting task. It’s a long-term goal that you may not feel like you have time for. You might be wondering: How much should I save for my child’s college? It can be hard to predict how much money you’ll need for a kid who’s in diapers today. Since the cost of college has increased every year since the 80s, it only makes sense that you should start saving for your child’s education as soon as possible. Unfortunately, you can’t rely solely on your child’s future earnings to pay for their college education. Let’s use an average student’s expenses as an example. Kids are out of the house, they’re adults, they’re responsible for their own bills and they should be paying for school themselves. That being said, you should still take into account your expected costs and savings.
Open a custodial investment account
One of the best ways to save for your child’s future is to open a custodial investment account, such as a 529 plan. This way, you can invest in a wide variety of assets, such as stocks, bonds, real estate, cash and cryptocurrencies. Your child can’t access the money in this account until they’re 18 years old, and even then, they’ll pay a penalty to withdraw the funds early. Since it’s a plan that’s designed to benefit a child’s future, you don’t have to report the 529 account on your taxes. The investment income that you earn in the account will be taxed, but not until your child withdraws the money. This means that you can put a significant amount of money into the account each year, and it won’t affect your taxes at all.
Open a Roth IRA for your child’s future
A Roth IRA is a type of investment account that you can open for yourself or for your child. The biggest difference between a Roth IRA and a 529 plan is that your child can withdraw the money that’s been invested in the Roth IRA at any time, and you don’t have to pay any penalties. Since you’re the one managing the Roth IRA, you decide when to withdraw the funds and how much to withdraw. This means you don’t have to rely on your child’s future income or the fact that they’ll be in a better tax bracket when they’re working. Unlike a 529 plan, the money in a Roth IRA is taxed as income now.
Roth IRA vs. Taxable Account
These are two very different investment accounts. A Roth IRA is a savings plan that allows you to invest after-tax money. This means that you’ll pay taxes now, but won’t pay any taxes in the future when you withdraw the funds. A taxable account, on the other hand, allows you to invest pre-tax money. This means that you won’t pay taxes now, but will pay taxes when you withdraw the funds in the future. You should consider the Roth IRA because you’ll pay taxes now. This means that you’re investing more money into your child’s future. You can put more money into a Roth IRA than a 529 plan because you won’t have to pay taxes on the earnings. If you invest $10,000 in a 529 plan, you’ll pay taxes on it. In a taxable account, you won’t have to pay taxes on the earnings.
Now is the time to invest in yourself
If you want to start saving for your child’s future, you have to begin now. Investing in a Roth IRA or another type of investment account can be difficult if you’re barely scraping by. After all, you have to save money for your kids’ future, and you have to save for your own future. You have bills to pay, groceries to buy and a roof over your head that needs to be repaired from time to time. If you want to start saving for your child’s future, you have to start now. Saving money, especially when you’re barely scraping by, can be a challenge, but it’s an important one. And it’s an investment in your child’s future.
Bottom line
The cost of college has increased every year since the 1980s. Unfortunately, the average person only starts saving for their child’s future around the time they graduate high school or college. If you want to start saving for your child’s future, you have to begin now. This can be a daunting task, but there are ways to make it easier. Open a custodial investment account, such as a 529 plan, and start investing in a wide variety of assets. You can also open a Roth IRA for your child’s future.