The Best Time To Save For College Is Before Kids!
March 11, 2009 – 5:34 amI’ve been thinking a lot about paying for college when the kiddos arrive, and it seems to me that it will be easier to pay for kids before you have them than it will be after. I understand that most of us have trouble saving as much as we would like to, but it seems like it will only get more difficult to save for college after the kiddos arrive.
As we all know investing early can make a huge difference, so my thought is that the earlier a parent can put money away for college, the better. Even small amounts can make a big difference when they grow for 18, 20, or even 25 years. Eventually as the cost of children should stabilize later in life, and the parents may be able to invest more for schooling (due to income growth). By that point, however, the funds will have very little time to grow and compound.
I’m still not 100% committed to paying for my childrens college, especially all of it. But assuming that I do want to save something for them my plan would be to open 529 plans as soon as possible. I have at least one kid on the way now, so I’m not exactly ahead of the curve on this idea. Even if kids are years away for you and your spouse, you could still use this tip. Just open a 529 in your own name. Open one for you and one for your wife, and you’ll have started saving for your first two kiddos’ higher education.
Once the kids are born you can make them the benificiary of the account, and/or you could open educational saving accounts ($2000/yr max per child though, which is likely to be a great start if you start early).
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5 Responses to “The Best Time To Save For College Is Before Kids!”
You may be uncertain of the role a parent should play in financing their child’s education, but do you really want your child to be saddled with a 6-figure debt load starting out in their adult life? Assuming even that your children win scholarships and save their own money from the time they start working, there’s still usually a large gap between what they can come up with on their own and what the tuition will be.
Also, as long as children are students up to the age of 25, colleges and the IRS place responsibility for the child’s financial welfare (as far as schooling goes) on the parent. That means that if your child needs a student loan, chances are you’ll have to cosign it. And even if your child manages to pay for college all on their own, without any help from you, they can’t take the tax break for funding their own education; that goes to you, unless they wait until after the age of 25 to attend college. It’s not fair, but it’s the way it works.
By Dawn on Mar 11, 2009
You raise very valid points Karen. I didn’t know about the age 25/cosigning issue. Is that a new rule? When I was in school a dozen years ago or so I had friends that moved to a state to become a resident before attending school. I think they had to work two years for it to work, but it saved them a ton of money.
I don’t believe in cosigning for loans for anyone (per Biblical teachings), so this could be a major issue for me.
Thank you for the comment!
By todd on Mar 14, 2009
Sure sounds good in theory, bad in principal. If you aren’t maxing out all retirement accounts, ie IRAs (roth, non-deductible) and 401ks for both people if available then there is no point. Retirement savings comes first. Imagine how much more you’ll have if you started maxing out earlier?
By LAL on Mar 24, 2009