My daughter told me recently that she wants to be an ice skating instructor who teaches people to ice skate WITH their puppies. I love it! My oldest, however, has a different kind of ambition. He asks things like, “Mom, how many years can you go to school? I mean, what’s the longest you can go past college?” This child has also expressed interest in attending the same private university that his dad and I went to. It currently has about a $50,000/year price tag. And, he thinks a PhD might be in his future, too. I love his big dreams and ambition, but, my son talking about his grand plans for college and grad school gets me thinking about college costs.
I figure there are two paths that we could take…
Plan A: Pray for scholarships.
My husband and I were both lucky enough to have full tuition covered and came out of college totally debt free. But, what are the odds that will happen for all three of my kids? Probably nil. We’ll still be hoping for scholarships, but we figure there better be a Plan B…
Plan B: Save as much as we can.
This one can sound kind of scary and overwhelming, especially if you’ve never really been a saver. When we first started talking about college savings when my oldest was born, I had a couple of big questions:
1. How do I manage to save the money in the first place?
Here are a few things my family does to make it easier:
- Make it automatic! Let your bank take care of moving the money into your college savings for you. You won’t have the chance to forget to do it or make excuses not to do it. Whatever works in your budget – whether it’s $20 a month or a few hundred a month – you start to feel like you never really had it anyway so you don’t miss it like you would if you had to consciously make the transfer yourself.
- Let relatives help. Do Grandma and Grandpa sometimes send cash gifts? Put some or all into the college savings account. Or when they ask what your kids want for their birthday and you think your house is already over-run with toys, ask for an inexpensive gift so your child has something fun to open and let them know you’d rather be able to put the rest of what they would have spent into your college savings account.
- Sign up for UPromise.com. You get cash back for shopping and can transfer the cash you earn directly to your child’s college savings account. I’ve gotten a few hundred dollars in free money just from doing my usual online shopping. Your friends and relatives can sign up, too, and direct the money to your child’s account.
I’ve also heard some good tips from family and friends:
- When you get reimbursement checks from work for things you’ve already paid for, put that money into the college savings account.
- When you pay off a loan, like a car payment or a college loan, start putting the amount you used to put into the loan each month into your college savings account.
- Use cash back apps or credit cards with rewards and put all the money you get from them into your college savings.
2. What do I do with the money we’re saving?
There are a few options for where you can invest your child’s college savings. You can go with a plain old savings account at the bank. You can open a Coverdell IRA. You can do a prepaid tuition program at some universities. The most common option that works best for most people is a 529 plan. States throughout the country have their own college savings plans that have tax benefits under the IRS’s section 529, thus they are creatively named things like the Iowa 529 College Savings Plan. Basically, you’re investing in stocks in hopes of great performance to help your savings grow. It’s a lot like putting money in a 401k, but instead of taking money out at retirement, you take out the money when it’s time to pay for your child to go to college. Here are some cool things about 529 Plans:
- You can get tax deductions on your federal and state taxes for your contributions.
- You won’t be taxed on the earnings when you withdraw money for your child’s college expenses.
- If Plan A does work out and your child miraculously gets full scholarships, there’s no penalty for withdrawing the money if that’s the reason.
- You can start with a deposit of as little as $25.
- Though they are often named for the state that they’re located in (like the Iowa 529 College Savings Plan) there are no requirements for using the money in a particular state or for a particular school.
- Anybody can open one and make your child the beneficiary – it could be a parent, grandparent, relative or family friend.
- The money can roll over from child to child in your family. If one of your kids happens to be a genius or a phenomenal athlete and gets a full ride, you can use the money for another child in your family.
- Your child can use the money at any time in life. If they decide they don’t want to go to college right after high school, it’ll wait until they’re ready. And, with current tax law starting in the 2019 tax year, you can even pay for private K-12 school tuition with your 529.
- It can be used for community college, trade schools, four-year colleges or grad school. So, whatever your child is interested in learning, from cosmetology to law school, it can help. I’m not sure how exactly you get trained to become a puppy ice skating instructor, but maybe it could help with my 5-year-old’s grand plans, too!