Becoming a parent is one of the most rewarding experiences someone can go through. You’ve spent your life up until this point responsible for yourself. Your new arrival brings new and increased responsibility. Education costs are rapidly climbing, and the student debt crisis is heavily impacting the millennial generation. As a new parent, who may be facing some of your own student loan debt, you’re starting to think about the best ways to financially prepare yourself and your child for their future education. Rest assured, here are a few college saving tips for new parents:
The sooner you start, the better. As a new parent, you have a good 18 years until your new addition is off to begin their college career, and although that may seem like a long time, it tends to move quickly. Starting early will keep you ahead of the game and allow you the opportunity to take advantage of more years of potential growth.
Set Realistic Goals
Financial situations can change in an instant, so you want to set savings goals that are attainable for you in your current financial standing. With an early start, you can build your savings contributions up as time passes. Start making small, regular contributions that fit within your budget. Setting realistic goals will make it easier for you to reach. If you find you’re able to increase your contribution amount, do so, as long as it doesn’t break the bank.
Choose the Right Savings Plan
When it comes to college savings plans, there are a few different options you can look into. Parents looking to open a college savings account can choose from:
- 529 Plan
- Custodial Savings Accounts
- Individual Retirement Accounts (IRA’s)
- Educational Savings Accounts (ESA’s)
While each option has their differences, they can all be used to help better prepare for your child’s future education. A 529 Plan, also known as a “qualified tuition plan,” for example, is a common choice among parents, as it allows for tax-free financial growth. Contributions to 529 Plans are not taxed, as long as they are used for “qualified higher-education expenses.”
Bank the Extras
Tax returns and other life events like birthday’s and holidays, all tend to bring in extra funds throughout the year. A best practice is to take a portion of any additional funds you or your child receives throughout the year and contribute it back into your college savings plan.