Expecting a baby, whether it’s your first or fifth, is a very exciting time in life. It can also be pretty terrifying too. After all, you’re not only responsible for the well being of your child as they grow, you also have to think about providing for them when they are grown – mainly by saving for their college careers. If you think it’s too early to worry about that, think again.
In 20 years, tuition is expected to grow to $68,471 for one year, or a total of nearly $300,000 on a four-year program, according to CNBC. And that’s just for one child. NOW does it sound too early to start saving?
529 College Savings Plans
First, take a gander at a 529 plan, which is an investment account that allows you toset aside money for your child’s education where it grows tax-free. When you take it out at college time, you won’t pay taxes on it as long as it’s used for higher education. No matter what your income, you can contribute to a 529 account, with a lifetime maximum contribution of up to $300,000. This amount will depend on your state. Got $25? You can start your account with that small amount and contribute when you can so you can use it to pay for an accredited college or university in the United States.
Try a Pre-Paid College Plan
Many states also offer pre-paid college tuition plans, such as UPromise, for those planning on attending an in-state school. With this specific program, you can earn up to 10 percent cash back on college savings when you make qualified purchases related to higher education.
Go with a Roth IRA
You have two choices here: a traditional IRA and a Roth IRA. These are investment accounts that let you save money for retirement or college while avoiding significant tax pitfalls. You have your choice of deductible and nondeductible. You may be eligible for a traditional deductible IRA depending on your income and availability of a company retirement plan. With this type, your annual contributions are tax deductible, but you will face taxes on the contributions and earnings when you withdraw from the account.
With a Roth IRA, your contributions are not tax deductible, but you can enjoy tax-free earnings provided you withdraw them after the required five-year holding period. You also have to put that money toward qualified expenses such as tuition and books.
Try Your Hand at Mutual Funds
You may get turned off by aggressive stocks, but you really can’t go wrong with mutual funds at this early juncture.CNN Money suggests starting with ones that have displayed three- to five-year track records for low expenses. Have the contributions automaticallywithdrawn monthly from your bank account, with asset allocation based on the age of your child. Because you’re pregnant and the baby’s not even here yet, keep 60 to 95 percent of your money in the stock market but retain a balanced portfolio: aim for a 60/40 ration of stocks to bonds.
Diversify, diversify, diversify! You don’t want to put all your college savings into one basket and become the victim of fraud — yet one more reason to know a qualified stock fraud attorneys like the ones at the Thomas Law Group!