6 Ways To Save up for Your Children’s College Education

Last updated on July 15th, 2022 at 12:40 am

All parents want a better future for their children. That’s why you’re probably thinking about ways to save up for your children’s college education from the moment they’re born–maybe even before. Although raising a child can be difficult and expensive, you can still find ways to save.

The best way to achieve your goal is to devise a savings plan early on. It is possible to set a percentage of your earnings aside for your child’s future without sacrificing funds for your retirement. 

And once you’ve put aside a considerable amount of money for your child, don’t just leave it in your savings account. You can make the most of your money by putting some of it in investment products that earn higher profits or interest rates.

Here are six ways to save up for your children’s college education using various investment opportunities. Keep reading to learn more.

6 Ways To Save up for Your Children’s College Education

• Precious Metals

The value of precious metals tends to increase over time. Because of that, gold and other precious metals are good to have in case of a financial downturn or period of uncertainty, such as during insurgencies, political unrest, and even a pandemic. You can visit Oxford Gold Group website to learn more about investing in precious metals.

Aside from gold, you can consider putting some of your savings in other in-demand metals like platinum, silver, and palladium.

• 529 Plan

Finding money to set aside isn’t the biggest problem for many parents, especially those who are good at saving money. What they struggle with is finding the right savings plan specifically designed to help grow their child’s college education fund.

Fortunately, you can always turn to a 529 plan. This is a tax-advantaged fund that’s precisely intended to cover most costs related to college tuition, room and board, and miscellaneous fees. In most states, this plan is tax-deferred, and qualified withdrawals are tax-free. However, depending on your state, there may be slight variations in your incentives for opening this investment account.

To maximize the benefits of a 529 plan, you can choose the prepaid option, which lets you pay tuition and other fees at current rates. Since tuition fees in colleges and universities usually increase through the years, the prepaid option can help you cushion the impact of rising education costs. However, you can only use it for tuition and not for other college expenses like room and board. And while all states offer a 529 savings plan, only a few states have prepaid tuition programs.

• Custodial Account

Another way you can save up for your children’s college education is by opening a custodial account, such as a Uniform Transfers to Minor Act or Uniform Gifts to Minors Act (UTMA) account. The good thing about this is anyone can open them, so you can even your child’s grandparents or godparents can help out. Some people also use this type of account for estate planning.

A custodial account is irrevocable, and the right to manage it will be transferred to the beneficiary when they reach adulthood, at around 18 to 25 years old, depending on the state. Until that time, the person who opened the account will be responsible for managing and investing in it.

On the downside, a custodial account is not tax-free. The tax rate depends on the state you live in. However, since it’s not a college fund, the beneficiary can use the money in the account for any purpose. Suppose your child wants to do an apprenticeship overseas or open a business instead of enrolling in college, they’ll have no problem withdrawing the funds they need.

• Roth IRA

Some people also use a Roth IRA to save money for their child’s college fund. Although this is an after-tax savings option, many people consider using this retirement account when saving for college funds because qualified withdrawals are tax-free.

But take note that there are some limitations to a Roth IRA. One is, you can’t open this account if you and your spouse earn more than $288,000 a year, or $140,000 if you are single. Secondly, the maximum amount you can put into a Roth IRA annually is $6,000 if you’re under 50 years old.

Among the tax-free withdrawals you can make from this type of retirement savings plan are tertiary education costs. So if your child decides to go to college, you can take money from your Roth IRA plan tax-free. However, if your child gets a scholarship, decides not to go to college, or earns enough to pay for their education, you can still keep your savings for your retirement.

• Stocks, ETFs, And Other High-Return Securities

As mentioned earlier, it’s ideal to start saving for college funds while your child is still young. One compelling reason to do so is to have the flexibility to put your money in high-return securities such as stocks, mutual funds, and other investments. You can opt to buy and sell stocks if you understand how they work. But you can also invest in mutual funds, which are composed of different corporate stocks that investment firms manage. Exchange-traded funds (ETFs) are also managed securities that follow price movements in exchanges, commodities, sectors, or other assets.

Always remember that high-yielding investments also have high risks. That’s why you need to keep a watchful eye on your investments or hire someone to manage your account for you. Market volatilities can bring both gains and losses. If you have more than 10 years to prepare for your kid’s college education, time is on your side, so you can still ride the fluctuations in the market for a promise of significant returns.

• Low-Risk Investment Options

If you only have a little over five years to save for your child’s college fund, you may want to stick to less risky investments such as certificates of deposits, treasury bonds, or money market accounts. Those will still give you a better return than ordinary savings accounts, but your profits may be lower than high-yield investments like stocks, precious metals, and even cryptocurrencies.

The Bottom Line

When it’s time to save up for your children’s college education, wise parents start early and save consistently. But instead of keeping their savings in a regular savings account or a literal piggy bank, they can find ways to give their money more leverage to grow over time. It’s smart to spread the funds you’ve saved up among different options or investments to balance your exposure to risk and potential for better returns.

Which of these strageties will you use to save up for your children’s college education? Leave us a comment below.

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