60-Second Guide to College Savings Strategies
A college education can cost tens of thousands of dollars -- or more. However, there are ways to make your diploma dollars go farther. You can get a head start in a single minute -- here's how!
0:60 Figure out how much it'll cost
We're sorry to report that a college education is still very, very expensive. If your child goes to private school, you're looking at a potential $100,000 to $200,000 price tag -- and that doesn't even account for how much costs will rise between now and the time your kids are ready to go to college. If you have an idea where your child will likely end up attending college, it's never too early to find out exactly what you're getting yourself into, so start your research while your baby's taking a nap.
0:51 Start saving
No matter how intimidating your college cost estimate may seem, it's crucial to start saving to cover those expenses as soon as you can. Keep in mind that with scholarships and other financial aid, you probably won't have to cover the whole cost yourself -- but the more you save, the more choices your kids will have after high school.
0:47 Pick a way to save
Once you get some money together, you have a number of choices on what type of account to use for college savings -- direct investments, an education IRA, or a 529 plan. All have pros and cons. Opening a mutual fund or brokerage account in your child's name may help you save taxes, but you give up control of how your child will eventually use the money in the account. Coverdell ESAs -- once known as Education IRAs -- offer tax-free growth, but they only let you save a small amount of money. 529 plans also have tax advantages and have much higher contribution limits than ESAs. Depending on your situation, you may want to pick multiple ways to save.
0:31 Choose a plan
If you decide to go with a 529 plan, you're still not done -- you have to decide which plan to choose from. Because 529 plans are associated with particular states, there are dozens of different plans, each of which has its own advantages and disadvantages. Check your own state's plan to see if there are any additional benefits, such as state income tax breaks. But you don't have to stay with your own state, so also keep costs in mind -- some plans charge high fees that outweigh any advantages from using the plan.
0:18 Set up your account
The next step is to figure out how to establish an account. Any financial institution can help you open an account in your child's name, and most financial institutions offer Coverdell ESAs. For 529 plans, however, you have to contact the provider for the particular state's plan you choose. Some states let you go through financial advisors if you want, but they'll often have a less expensive way to invest directly in the plan.
0:08 Start socking it away!
The only thing left to do is to set money aside in those accounts. For the first few years, you probably won't feel like you're making much progress -- but given time and the power of compounding, every little bit will keep working for you and your gifted offspring's future 4.0 grade-point average.
0:02 Start the countdown
Before you know it, your kids will be off to college (save for the trips home to do their laundry), and you'll have an empty nest. Having helped your kids out, you can turn your attention back to your own finances. But that's 60 seconds for another day -- for now, take pride in a job well done!
Got another minute?
Our savings collection looks more closely at how you can save more for all your financial needs.