If you have a child headed to college this year, bills could add up to as much as $55,000 per year. According to Parade magazine, parents should try to save one-third of the total and hopefully scholarships and grants can help with the rest. It’s never too late to start saving for your child’s education. Here are four plans to help.
1. The 529 Plan: The key with these is to keep your assets well-balanced, says the magazine. Switch from stocks to bonds as your child gets older. Each state offers a version of the 529. Check out SavingforCollege to compare options. You can get tax breaks in most states for 529s. There is no annual contribution limit and accounts can hold up to $380,000. Keep in mind that by the time your kid is a freshman in high school, less than 70 percent of your savings should be in stocks, says the article.
2. Coverdell ESAs: An ESA is an Education Savings Account and parents can invest up to $2,000. The money remains tax-free until you withdraw it. They have lower fees than 529s and they can also be used to pay for expenses in K-12 grades. However, it has limited eligibility. Couples must earn less than $220,000.
3. Roth IRAs: You can use these funds without a penalty before age 59 1/2 to pay for your child’s education. You can invest up to $5,000 per year and your savings grow tax-free. Make sure, however, that you aren’t tapping into your only retirement money. Use the Roth IRA for your kid if you have other retirement money stashed away. For 2010, you must earn less than $120,000 to qualify and married couples must earn less than $177,000.
4. Savings Accounts, Money Markets, CDs and Bonds: These are simple things to get started, says the article. You have lots of flexibility with these and there are no restrictions. But the interest you earn isn’t much.