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Tips for Parents: Saving for College Before the Graduate is Born

Dear Parents,

Preparing for a child is one of the most exhilarating and exhausting chapters in life. You will prepare for that arrival in every way possible: financially, emotionally, physically (this one is more for the moms, though), spiritually, etc. And, while, diapers, baby rooms, and baby books are important, many parents will forget to prepare for that critical time in life that most children will get to at around 18: college.

Preparing for an unborn child’s first few months is already a nearly impossible feat, so, you ask, “Why should I worry about this fetus’s college career now?”

The short answer: This is the most optimal time to begin saving is now. Tuition rates have only been increasing since college degrees were achievable to anyone. According to Forbes, the “projected cost of an elite college from 2018 -- 2021 could soar as high as $334,000 for a four year degree.” Now, imagine, eighteen years from now, how much do you think you’ll have to cough up to the establishment?

There are many ways to prepare for the financial aspect of your child’s college career: piggy bank, stuffing a few loose bills under the mattress, etc.

529 Plan

One of the most efficient ways to save is by starting a 529 college savings plan. Basically, this plan, named after Section 529 of the Internal Revenue Code, is run by every state as a way to set aside money to grow tax-free for a child to use when they enter college for any college-related costs, such as tuition, books, dorm room essentials - cough decorations cough - and other things of the sort; this money can be withdrawn tax-free at the time of college attendance.

And, don’t fret; even if you’re saving with the New Jersey 529 plan, your child can use that money to pay for a college in, let’s say, Kentucky. More general information on that is available here. So, any of that baby shower money can find a great home in this plan!

Stocks

Another great way to save for college is by purchasing reliable stocks such as in Disney, because these will grow in eighteen years. Time’s Ian Salisbury suggests, “Start early, pick a balanced, low-cost portfolio of stocks and bonds, and aim to spend it down judiciously over time.” You can find more detailed information here.

Roth IRA

If you’re still looking to just open up an account and let the money do the growing in a more low maintenance way, then look into the Roth IRA option. Many individuals are choosing to use them to save up for retirement, and unlike the 529, you can use the Roth IRA for any expenses that are not directly related to college, such as purchasing a new car before the beginning of the semester. Mark Struthers, a CFA and CFP, does a great job of comparing the two plans on here, thereby, allowing you to make an informed decision when choosing one, or even invest in both.

By saving up for college from now, you eliminate the financial limitation placed on you and your child when it comes time to apply for and choose a college. If your child knows that money is no issue, he/she might choose to apply to that incredibly prestigious program or school that they will be more than happy in attending, instead of just settling for a more mediocre one. This is a little cliche, but, every penny counts here. Truly.

Best of luck!