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Saving for College
Most families pay for college using a combination of savings, current earnings and financial aid. You can save money and reduce worry by starting early.
» Saving early and regularly gives compound interest time to accumulate to your benefit.» By starting early, you can save smaller amounts over a longer period of time.» Early planning allows you to save for both education and retirement.» Early investing helps students complete college with less debt.» Having a larger college fund gives students a broader range of college choices.
There are many different types of college savings accounts:
» Traditional bank accounts, including savings and money market accounts offer modest interest rates and balances up to $100,000 are federally insured.» Coverdell Education Savings Accounts and Roth IRAs allow families to save for education and use the money tax-free to pay for college expenses.» Qualified State Tuition (529) Plans, allow families to prepay tuition expenses or to accumulate savings in tax-advantaged funds.» Insurance companies offer annuity policies. The cash value of these "permanent" life insurance policies can be tapped to help cover education expenses.» Retirement accounts often allow the employee to withdraw funds or take loans against the current value to fund college costs. Check with your employer to learn more.» U.S. Savings Bonds earn interest at modest rates and are exempt from most local, state and federal taxes if the bonds are used to fund education.» Mutual Funds pool investors’ funds in a managed portfolio of securities. These funds carry higher risk than traditional bank accounts, but typically earn interest at higher rates.» Stocks offer savvy investors the potential for long-term investment growth. Available through brokerage firms, stocks offer no guarantees, so invest carefully.
The most important thing to keep in mind is that it is never too early or too late to begin to save for college. Even if you are only one year away, most families can afford to put some amount aside every week or every month, no matter how small or how large.
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