Saving for your child’s future college expenses can be a challenge, especially when you’re already struggling to make ends meet. There are several things to think about such as books, health expenses, etc. It may also be a dorm if your kid won’t be going to a school near where you live. However, setting aside some money for college is very smart for a variety of reasons. It doesn’t affect whether you do it by specially designating a fund or simply stashing money in a savings account.
You Could Potentially Avoid Taxation
There are many ways that people go about saving money for their children’s college funds. One very popular way to do so is via a 529 savings plan. These types of plans have a tax advantage as earnings in a 529 plan grow federally tax-free. Moreover, these earnings won’t be taxed when the money is taken out to pay for college. Expenses and fees will differ. These depend on the kind of 529 plan that you go with. So, it’s important that you research the best plans offered out there by different entities or states.
Some states may also give you a tax break. Generally, you can officially request the state tax benefits that you contribute to your 529 plan, each year. If your state doesn’t offer tax benefits, you can choose any other state’s plan.
For any reason and at any time, a 529 account owner can withhold the funds. But, be aware that, the earnings of non-qualified withdrawals will incur an additional 10% penalty tax, besides incurring the income tax.
The money you withdraw does have to be verifiably spent on valid education expenses to avoid a penalty, but if you use the money for your intended purposes, you can easily skip out on a lot of hefty taxation.
Your Child Can Choose the Best Possible School
Another major benefit of saving for college is that your child can choose the school he or she really wants to go to.
Often, when parents are struggling to make ends meet and don’t have any savings in place, their children are forced to pick a school based on what they can afford or what school offers the best financial aid package. This keeps kids from picking the school they really want to go to and sometimes from attending the school with the best programs, connections, or other advantages.
If you want your child to benefit as much as possible from their education, they have to pick a school based on merit and opportunity, not on cost. Fortunately, when you have a college savings account in place, your child can make a wise decision, one that will benefit their future, instead of a decision out of necessity.
You Can Save More with Compound Growth
As you can see, it’s very important and smart to save money towards your child’s education. Furthermore, it’s important to start saving that money as early as possible. The sooner you start saving- even if it means your child’s still in diapers- the more chance you’ll have to benefit from compound growth.
Most types of college savings accounts are going to offer some kind of annual return, which means your money grows by that percentage. And, the longer you save it, the more it grows. Thus, choose a college fund with a nice return rate and then start saving as soon as you can. This will help your wallet and your child immensely in the future.
If you can keep these helpful tips in mind, not only will your child have a headstart in life, but you’ll also benefit as much as possible from your savings efforts. And, with the cost of college constantly on the rise, nothing could be smarter in this day and age.
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