College tuition is rising. In fact, it has risen in costs 500% since 1985! It is outpacing inflation by 121%. Not only is it outpacing inflation but it has eclipsed rising healthcare costs by 286%! Yikes!
The average student goes in debt for about $20,000 and 8% of students have a loan of $40,000 or more. So what is the best way to save for college to ensure your children aren't swamped in debt for all of their career?
Here's the best way to be ready to pay for college:
- The first thing you should is set up an Education IRA or an Education Savings Account. The great thing about this type of savings account is that it's tax free! This type of savings account yields much more interest than a typical savings account. Depending on when you start saving, you can save more than 3 times as much for college by investing in this type of structure.
- 529 Plans can be a nice addition to the ESA if you want to save more. However, some the options for these can very. Some will freeze your options or make automatic changes based on your child's age. Make sure you pick one you have control over. As always, our firm can help you with this.
- A less ideal plan is to set up a UTMA or UGMA which stands for Uniform Transfer to Minor Act or Uniform Gift to Minor Act. In this scenario, the custodian of the child maintains control of the account until the child reaches 21 or 18 under a UGMA. Also the child once in control of the money doesn't have to use it for school.
Everybody's financial situation is different so, we're always here to help you understand what's best for you and your family's financial future. Give us a call and we can walk you through what's going to work best for you!
Image courtesy of vitroids on flickr; reproduced under Creative Commons 2.0
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