The joys of a new baby are limitless. But first-time and veteran parents alike know that immeasurable anxieties come along with having a new baby, too. One particular worry that looms large for today’s parents is the cost of college.
According to Collegeboard.org, tuition, room, and board today can cost anywhere from $20,000 to upwards of $60,000 at a private four-year institution.
Who knows what it will be 18 years from now?
And with student debt in America totaling upwards of $1.4 trillion according to nerdwaller.com, how could new parents not be nervous?
Image: Average cost of college – Including tuition, fees, room, and board – Source: College Board, 2019
So, what’s the best way to save for your child’s college education? Start early.
Invest Early, Invest Often
Parents of newborns and young children have one huge advantage when it comes to thinking about how to pay for higher education: time. This is the most valuable asset out there when it comes to long-term investments. By investing in your child’s education when he or she is still young, you have a large window of opportunity to capitalize on the “magic” of compound interest. Even investing a modest sum may set your child up for success.
For example, if you invest $200 per month from the time your child is born until the day she turns 18, you will have accumulated nearly $78,000, assuming a 6% rate of return. Comparatively, if you begin investing $400 monthly beginning when your child is 10 years old, you will have amassed about $49,000.
The earlier you start, the better off you’ll be. Even if it may be difficult to contribute much right now, setting up a plan, putting in whatever you can, and doing so consistently is what matters.
Consider setting up automatic recurring contributions online. It’s always possible to contribute more later, but in order to take advantage of compound interest, investing now is more important than investing big.
Our next article will focus on the 529 plan, a savings vehicle designed specifically for education.
If you would like to learn more about saving for education expenses, fill out our contact form and a team member will be in touch soon to discuss.
The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.
