A child’s college education is quite a costly proposition for most parents, which makes it important for them to start saving as early as possible. There are a wide variety of investment options available, and they can pick up the best ones that meet their needs and budget.
The most commonly used college savings plan is the 529 plan, widely available as sponsorships from individuals or financial institutions. It is advisable to choose the plan that has vast coverage as it would help your child to get admission in any college across the country. There are several ways in which you can save for your child’s college education, but it is wise to choose your plans wisely. The following tips will help you in choosing the right plan for your child’s college education:
1. Go for plans that come with the most tax benefits
Several college savings options have tax exemption features, and choosing one of these plans will improve your saving prospects. You can get federal as well as state tax benefits if you choose these plans. Selecting one of the savings bonds will exempt you from paying state and local taxes, and this will boost your savings for college. You have to remember that every individual has to pay a different amount of tax and is in a different tax situation, so it is essential to consider all the aspects before making a choice.
2. Choose plans that have lower fees
Charges are levied when you opt for any college savings plan for your child. These upfront charges may look negligible the first time you see them, but they add up to a significant amount when calculating the deductions.
Even a negligible difference in the fees now will have a huge impact over a period, because you need to pay these charges annually to continue your plan. If you wish to invest in mutual funds that offer a host of college funding options, it is wise to check out the fees column to estimate the costs over time.
3. Manage your risks properly
The value of your investments not only increases over time but can also decrease significantly. This makes it imperative that you manage your risks properly to continue the savings for your child’s college. For example, if you choose the certificate of deposit scheme, it will involve almost zero risks to your principal amount. A great way to manage your risks is to mix and match your investment risks using age-based asset allocation. Aggressive investment planning when your child is young can mitigate the risks of potential losses in the future. As your child ages, you can shift to more conservative and risk-free options and protect your investments. Setting up a good investment platform when your child is young is essential to build enough assets in the future to fund their college education.