If you’re a new parent, you might have your hands full with changing diapers and trying to get six five hours of sleep in a given night. Probably the last thing on your mind is saving for your newborn’s higher education. The truth is, with time on your side, now is a great time to get cracking on a college savings plans. Here are some simple ways on starting a college savings fund for your future college goer:
Open a 529 plan account
A 529 plan is an easy way to start investing in your child’s college fund. An education savings plan to help save for the costs of college, a 529 account offers tax benefits and will make sure the money won’t be touched until your child starts college. You can start small and automate savings into your account each month. “Parents can simply elect to have an automatic transfer into a 529 plan each month, even if it’s a small amount like $25 per month,” suggests Robert Farrington, founder of The College Investor.
Keep in mind there are two types of 529 plans: a pre-paid tuition plan, where you purchase credits that can be used at participating colleges and universities; and a college savings plan, which your child can use to pay for eligible higher education expenses. Before opening a fund, do some research to figure out which of the two plans is best for you and the future college goer in your family.
Matt Becker, a fee-only financial planner and founder of Mom and Dad Money, explains that when looking at 529 plans, you should know that you aren’t limited to the one offered in your state. “You’re free to choose any plan from around the country, so make sure to shop around for the best investment options and the lowest fees,” says Becker.
Open a Coverdell ESA
A Coverdell ESA or Educational Savings Account can also help you sock away money for your kid’s college savings. You can open an account through a credit union, bank, or other IRS-approved institution. You can contribute up to $2,000 per year and money saved grows tax-free until you make a withdrawal. Unlike a 529 plan, which can only be used for higher education, a Coverdell ESA can also be used for K-12 expenses.
Tap into college savings reward programs
You can get save for your child’s education through purchases you already make. For instance, UPromise® is a rewards program where you and your family can accrue rewards for when you shop online, book travel, or eat out. You’ll then receive cash back on eligible purchases that will go right back into a college savings plan.
There are also a handful of credit cards that offer points that can go toward a 529 plan. “Instead of earning 1 percent cash back or points on a credit card, parents can earn various reward amounts for the same shopping that can go to their child’s college,” explains Farrington. The easiest way to benefit from a rewards program is to use your card for stuff you buy on the regular. That way you won’t go overboard on your spending. And if you don’t want to open another credit card, you can redeem your rewards in the form of cash periodically and funnel it back into an education fund.
Open a separate savings account with your credit union or bank
Carissa Uhlman, vice president of student success at Inceptia, suggests that no matter how you save for your kid’s college education, it’s important to save early and regularly. “Keep the account in a parent’s name and keep it separate from your other accounts,” Uhlman advises. “Set up automatic contributions, and bolster those contributions anytime you receive a raise, bonus, or other financial influx.”
Credit unions can offer professional guidance and information on loan options and repayment plans. You can visit your nearest credit union branch to get advice and learn more about what services it offers.
Look into crowdfunding
If you want to do something a little more out-of-the-box, you can look into crowdfunding your kid’s college education. Crowdfunding has been used to fund anything from daydreaming sleep masks to a huge, inflatable sculpture of Lionel Richie’s head (true story) and it can help pay for your child’s higher education, too. GoFundMe, DreamFund, Indiegogo Life are sites you can raise money for personal education expenses. To give it a go, try setting up a campaign for a set amount of money and for short amount of time. Think of it as an experiment, and don’t be shy about asking friends and family to contribute to your fund during the holidays and birthdays.
You’ve probably experienced firsthand what a massive burden student debt can be, and certainly don’t want your kids to have to go through the same thing. Whether you plan on footing half or all of the costs, by starting now, you can be that much closer to help your child have a debt-free college experience.