What College Savings Plans Are Available To You?

Answer 1

Saving for college is not an easy task. As the price of higher education continues to climb, careful planning is required to be able to afford the cost of tuition without saddling your child with a lot of debt. College savings plans can be a great way to have money ready for your child when it comes time to pay for school.

A 529 Plan Is A Popular Option

Using a 529 plan allows parents to save money for college that can be put away tax-free until your child attends college. In that way, it is a lot like a 401K plan in the way that it defers your tax burden until future years. The account will also accumulate compounded interest while the money is in the account.

Your 401K Can Be Used To Pay For College Expenses

Parents can use their 401K savings to pay for the college expenses of their children. This is one of the few times where 401K money can be withdrawn without having to pay a penalty to do so. However, there may be tax consequences to using this money to help your child pay for college. Check with your accountant before making such a move.

Savings Bonds Offer A Savings Opportunity

Parents and grandparents should seriously consider using savings bonds as a way to help their children pay for college. Savings bonds are purchased at a discount, accrue interest and then can be redeemed at a higher than face value. For example, a $50 savings bond purchased in 1984 could be worth as much as $75 or more depending on how much interest it has accrued.

There are many great ways for parents to save money to cover the cost of the their child's college expenses. Making plans to pay for college now can help mitigate the high cost of tuition, books and other education related expenses that your child will face in 18 years or less.