College is becoming increasingly expensive as the years go by, and it shows no signs of getting any cheaper any time soon. According to a report on trends in college pricing done by College Data, the average tuition for the previous school year amounted to $53,980 for private colleges and $26,590 for a four-year in-state college. With retirement funds to save up, bills to pay, and other miscellaneous expenses to account for, it can be challenging to save for your child’s college education. There are still some ways you can set aside money to fund your child’s schooling. Here are some proven strategies to do precisely that.
Rental properties are profitable investments that will help you cover your child’s college tuition costs. Real estate appreciates over time, and you’ll be able to realize equity that you can use to pay for tuition, even if you haven’t fully paid off your mortgage balance. You must find a reputable mortgage broker who can get you a reasonable deal for these properties, especially ones that are guaranteed to increase in value. Take note that rental properties involve work on your part to ensure that you’re making the most of your investment.
A 529 plan is a college savings plan that allows you to receive tax and financial aid benefits as well as the potential to earn stock-market returns on what you contribute. You’re allowed to use it for K-12 tuition on top of college tuition. Your contributions will continue to grow tax-exempt until your child needs it for school. Only then will it be taxed at a student’s tax, which is relatively lower than your own. If you choose to put the money to use for something other than education fees, the funds will be considered a taxable income, which means you shouldn’t save more than you can spend when it comes to this option.
Coverdell Education Savings Account (ESA)
Unlike a 529 plan, your Coverdell ESA contributions are not tax-deductible. Despite this, your contributions will still grow tax-exempt and won’t be subject to tax should you use it for your child’s college tuition. The disadvantage of this type of funding method is that you cannot make any more contributions to the ESA once your child reaches the age of 18. You’re also not allowed to contribute to the account if your adjusted gross income is above a certain threshold.
Prepaid tuition is sometimes offered as an option in a 529 plan. It involves paying the state the cost of attending a public in-state university at what it’s currently priced before your child even goes to school, usually when they’re still incredibly young. This locks in the price for the considerable future. You won’t be subject to any tuition price hikes once your child begins college. The downside to this option is that trouble will arise if your child decides to study out-of-state or fails to qualify for any in-state colleges.
These are the most effective ways to fund your child’s future. Whatever option you choose, the most important thing you should do is to start thinking about these things as early as possible.