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5 Ways to Start Saving For Your Child’s Future

Raising a child from birth to age 18 costs an estimated $233,610 as of 2018. While this might seem like a lot of money, what it does not include is the cost of a college education. If you want your child to go to college or a university and graduate free of debt or with a low student loan amount to repay, the best time to start saving is before the child is born. Once your child has arrived in the world, you can use these five tips in order to start saving for your child’s future.

Open a 529 College Savings Plan

As soon as your child has a Social Security number, you can open a 529 college savings plan for them. You can contribute to your state’s plan or any other state’s plan. Your contributions are tax-deductible to a certain point. As long as the funds are used for educational expenses, you and your child pay no tax when they are withdrawn. Your child’s aunts, uncles, grandparents and others can also add to the fund. Some states allow you to start a 529 college savings fund with as little as $25. You need to make regular contributions in order to make the most of the account. An easy way to do this is with automated annual or monthly deductions.

Try a Coverdell Education Savings Account

A Coverdell Education Savings Account is a tax-deferred trust account. You can use it to pay for educational expenses from kindergarten through graduate school. Room and board count as educational expenses. The earnings grow tax-free, and dispersion is also tax-free as long as the funds are used for education. All of the funds in a Coverdell Education Savings Account have to be used by the time a child turns 30 years old.

Open a Roth IRA

A Roth IRA account is not just for retirement. It can also be used for educational expenses. A bonus of opening this type of account for your child is that if they get a full-ride scholarship or choose not to attend higher education, the money will be there for their own retirement one day. With a Roth IRA, you contribute funds that have already been taxed. The account grows tax-free, and the withdrawals are not subject to any tax.

Consider Investing in Assets

The volatility of mutual funds and the stock market may not sit well with you. Perhaps you like something more tangible. You could invest in precious metals. The price of gold has stood the test of time, increasing at a steady and comfortable rate. Real estate is another asset that many people choose for investing. For example, you may consider purchasing a rental property in a college town and leasing it in order to get monthly income that covers the expenses. You get to deduct costs on your taxes, and your child could live there when they go to college.

Put Funds in a Uniform Gift to Minors Act or Uniform Transfers to Minors Act Account

A Uniform Gift to Minors Act and Uniform Transfers to Minors Act account is also known as a custodial account. You can put money, stocks, mutual funds or real estate into it. If your child is a teen and has already developed their level of personal responsibility well, this investment account is a good choice. It may not be the best choice if your child is still an infant or toddler. Once the child turns 18, they can do whatever they want with the funds in the account.

There is no doubt that children are expensive. The cost of an education is high, too. By starting to save for your child’s future now, you can set them up to graduate from college without debt, which will allow them to have more options and flexibility in their lives. Your child will not have to worry about taking a job they hate just to pay their bills; instead, they’ll be able to choose a job that inspires them. Making this small sacrifice now also allows you to grow the money over the years. Saving for your child’s future is one of the best gifts you can give them as a parent.

Tim Esterdahl

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