3 Ways to Start Building a College Fund for Kids Today
March 17, 2021at4:00 AM
Student loan debt is slowly becoming an increasingly problematic issue for our country. According to recent reports, Americans collectively owe more than $1.5 trillion in debt, and this often makes it difficult for individuals to find financial freedom. The issue, though, is that attending college is often necessary to find lucrative and sustainable jobs.
The best thing you can do as a parent is to start building a college fund for your kids today so they can avoid taking out any student loans or minimize the amount they need. Here at Sabine Financial, we know that this idea is easier said than done for some parents, but if you use these helpful tips, you’ll realize it’s more doable than you might think.
Different strategies for starting a college fund for kids right now.
Put money into a savings account.
Savings accounts are an easy way to start a college fund for kids immediately. Banks make them easy to open, and you can set aside a portion of your income each month to put into the account. The benefit of keeping your money in the savings account is that it’s not as easy to access as your checking account. You’ll often be hit with a penalty if you withdraw funds from the savings account more than six times in a month, so there’s less of a chance that you’ll end up spending it on other purchases.
While this is a good option for putting money aside, it’s not the most efficient way to build a college fund for your children. That’s because they typically have low-interest rates, so you won’t earn much more money besides what you put into the account. They also can come with monthly maintenance fees, and the rates can change, so you can’t accurately predict how much money you’ll have.
Create an IRA account for college.
IRA accounts can be used to pay for qualified college expenses without being hit with costly early withdrawal fees and penalties, such as tuition, fees, books, supplies, and equipment required for enrollment or attendance. Each month, put a set amount of money into the investment account, and over time, your investments will earn interest and continue to grow until your children are ready to attend college.
When setting up the account, you have two primary options: either a traditional IRA or a Roth IRA. With a traditional IRA, your contributions aren’t taxed initially, and you can write-off the amount you put into it, which gives you an annual financial incentive. However, if you go with a Roth IRA, your contributions are taxed on the front end, but you can make tax-free withdrawals when it’s time to pay for college. For both accounts, you are limited to only $6,000 a year or $7,000 if you’re 50 or older. Our financial experts can help you decide which route is best for you.
Use a 529 plan.
The section 529 education savings plan is a higher-risk investment strategy that places your money in stocks, bonds, or mutual funds. While it’s similar to an IRA account, it has one significant advantage. 529 plans in Texas aren’t hindered by the same contribution limitations as the IRA, so you can put as much as $500,000 in annually.
One concern many parents have with 529 plans is how volatile they are since they’re so closely tied to higher-risk investments. That gives you less control over the account, and if your children arrive at college age when the market is down, they’ll have fewer funds available for school.
Are you ready to start your kid’s college fund?
Then reach out to our team of experts here at Sabine Financial. As one of the premier full-service financial consulting firms in Texas, we can help you figure out which strategy is best for your unique financial situation. Our team will work diligently to give you the insights you need to ensure your children are taken care of when they’re ready to head off to college. Learn more about the services we offer, or send us a message online to schedule your initial consultation.