Send Your Kids To College Without Going Broke – Guest Post
There are several suitable options for saving for your child’s college education; the information below will help you decide which one best suits your needs or wants when exploring the options.
529 plans are set up by individual states, and there are two different types of these plans–a prepaid plan and a savings plan.
• The prepaid 529 plan allows you to fix the current rate for tuition in your state, which means that you pay today’s college rate for your children to attend the school when they are ready, saving the inflation costs. You do not have to select a school or even the state the child will be attending college in at the time you start the fund; the prepaid 529 is good for any college or trade school in the United States. The biggest downside is that it is only available in roughly 20 states and may be difficult to transfer to another state should you relocate before you child is ready to attend school.
• The 529 savings funds work a little bit differently, they do not lock the price of tuition they and are not based on tuition inflation. You fund these plans over the years, with the money invested to raise additional funds. The amount that will be available in these 529 savings plans depends upon the amount of contributions and the performance of investments such as mutual funds. Most of these plans shift to more conservative investment vehicles as the time your child will start college draws nearer.
If you are the type of person that uses credit cards a lot, then maybe UPromise is something to look into. UPromise deposits 1% of all purchases you make with their card into an account you have set up for higher education, and there are bonuses provided by merchants for more than 1% for “eligible” purchases. If you plan to use the credit card from UPromise on a regular basis, then this would be a viable option. Some parents use the card as their main charge card to build maximum benefits; others build up enough rebates to pay for textbooks down the road, if not the tuition itself.
Another good option for the parents of potential future college students would be mutual funds. Mutual funds consist of groups of stocks and bonds that a professional investment consultant manages. Mutual funds offer parents a little more freedom, with no penalty for withdrawing your money, and the funds used for any purpose, not solely higher education.
Banks offer custodial accounts, also known as UGMAs (Uniform Gift to Minors Act) or UTMAs (Uniform Transfers to Minors Act). With these custodial accounts, you are the trustee and control the account until your child is 18 or 21, dependent on the state. At the age of majority, the child receives granted control over the account, and may use it for any purpose (not just higher education).
Certificates of deposit or CDs are one option to explore. CDs offer a slightly better interest rate for depositing a certain amount of money with a financial institution and contracting to leave the money for a set time. They usually have a fixed interest rate meaning you make a certain percentage for leaving your money with the institution. While it is a safe way to save money, it may not be the best because interest rates are currently low.
There are other options available such as money market accounts and regular savings accounts you have with your local bank, but like CDs usually earn less over the long haul than plans or accounts that invest in the stock market.
Denise Gabbard is a writer and social media devotee. She frequently writes about finance topics, like credit cards, college savings, and cheap mortgages.