If you’ve been to college, you know how stressful it can be to afford tuition, room, board, and textbooks.

The last thing you probably want is to let your kids experience the same pressure about student loans and tuition payments.

The importance of saving money can hardly be overemphasized when it comes to your child’s education.

How to Save Money for Child’s Education?

Saving up money now can reap great benefits for your children once they reach college age.

This article will explore some of the best ways to save money for your kids’ educational future.

1. Have a Goal (“2K Rule”)

Like with most money-saving pursuits, saving up money for a child’s college education requires a solid plan. And no plan is complete without a clear goal. In this case, how much money should you save up for your kid’s college tuition?

Fidelity Investments recommends using the “2K Rule.” To determine how much you should have tucked away in your child’s college education savings right now, multiply your kid’s current age by $2,000. For example, you should have $20,000 in savings by the time your child is 10 years old.

Note that the 2K Rule is a rule of thumb that is meant to determine half the cost of a four-year public university located in your state. You’ll need to save more for private universities or colleges located out of state. The guideline assumes that about half of your kid’s future college costs will be covered by scholarships, grants, and other forms of financial aid.

Once you’ve calculated approximately how much you will need to save per child, you can map out about how much to save per year. For example, if your oldest child is two years old, you’ll know to aim for saving $4,000 now, plus an additional $2,000 per year until they reach college.

2. Start a 529 Plan

The biggest piece of advice I can give you for saving up for a child’s education is to start a 529 plan. These plans are typically tax-advantaged and state-sponsored. Essentially, you contribute after-tax money into the 529 plan, then you can apply whatever money grew from the savings account tax-free.

Depending on which state you are in, you may be eligible for either a prepaid tuition 529 plan or a regular college savings plan.

Prepaid Tuition Plans

Prepaid tuition plans allow you to “lock in” to pay college tuition in your state at whatever the current rate is.

Let’s say that your state’s public university currently offers in-state tuition at $10,000 per semester. With a prepaid tuition 529 plan in place, $10,000 per semester is the price you’ll pay once your child attends college, even if the rate doubles in the years since you started saving.

The main drawback to this form of 529 plan is that it won’t work if your child chooses to attend school out of state. Another issue is that not every state has been able to fully fund their prepaid tuition plans, so only the following states currently offer this kind of plan:

  • Florida
  • Maryland
  • Massachusetts
  • Michigan
  • Mississippi
  • Nevada
  • Pennsylvania
  • Texas
  • Washington

College Savings Plans

Like prepaid tuition plans, college savings plans are state-sponsored. However, they are not limited to in-state schools, and they are available in every state in the Union. Finally, college savings plans can also be used toward room and board and similar expenses, whereas prepaid tuition plans can only be used for, well, tuition.

Since college savings plans aren’t locked into tuition rates like prepaid plans are, their growth is based on general market performance. Every state will be different as far as minimum contribution limits and expected growth, so be sure to check out the details of your own state’s plan!

3. Involve Your Kids in Saving Up

Just because you’re the parent doesn’t mean that you should be the only person saving up for your kid’s college. Every child should contribute something to his or her own educational future.

Allowance Payment for College Savings

Teaching the importance of savings can be as simple as using the classic “three jar method” for allowances. Set out three glass jars labeled “Give,” “Save,” and “Spend.” Whenever you pay your children their allowance (whether as a fixed amount or based on the number of chores done throughout the house), have them put at least 10% each in the “Give” and “Save” jars.

Your kids can then be free to put the rest of their allowance into whichever jars they prefer. Over time, they will learn the value of setting aside at least some of their money into the “Save” jar so that they can save up for that new skateboard, gaming console, or outfit that they want.

As your children get older, you can teach them the importance of saving money for even bigger stuff like college. By the time they start working summer and part-time jobs in middle and high school, your kids will be ready to set aside some of their own money for savings.

Share a Side Hustle

Another way that you can involve your kids in saving up for their education is through working a side hustle together. From flipping houses to doing lawn care, you can guide your children into earning their own money to set aside for their future.

4. Take Advantage of AP Classes and Dual Enrollment

It’s important to save up money in advance, but another way to help offset costs for your child’s education is to get an early lead on how much schooling they have to receive in the first place.

Advanced Placement Courses

Many school districts offer Advanced Placement (AP) courses in major subjects like Language Arts, US History, and Calculus. Students who enroll in these courses are eligible to take the AP exam in that subject. Scoring well on an AP exam can then translate to college credit.

Currently, it costs about $100 to take a single AP test. This means that for $100 in exam fees (and a lot of studying and high-level classwork!), a student can avoid spending several hundred dollars in tuition and textbooks for a class if they test out of it through an AP exam.

Dual Enrollment Courses

Another option to obtain college course credit while still in high school is dual enrollment courses. Various universities give students the option to take college-level courses online in tandem with their current high school classes.

Costs will vary depending on the program, but it is possible to spend less on college if your child completes multiple courses for a cheaper rate.

5. Unique Scholarships and Grants

Receiving financial assistance for your child’s college isn’t a guaranteed thing, especially if your economic circumstances change by the time your kid reaches university age. Regardless of how well or how poorly your family is doing financially, your child will always have the option to pursue scholarships.

Encourage your child to apply for as many scholarships and grants as possible. Sizable scholarships like a Regents Scholarship (which often pays for all tuition) or a sports scholarship are obviously big wins but don’t count any free money out.

Some foundations award scholarships based on community involvement, non-sport extracurricular activities, or familial heritage. Some scholarships are even offered to students just for being left-handed!

6. Make Use of Employer Tuition Reimbursement

We all know that employers are eager to offer benefits that convince new employees to join up and stay on staff for good. One of these potential benefits is education assistance in the form of partial or even full tuition reimbursement.

Companies that offer this form of financial assistance to employees include:

  • Amazon
  • Apple
  • Best Buy
  • BP
  • Chick-Fil-A
  • Chipotle
  • FedEx
  • Ford Motors
  • The Home Depot
  • KFC
  • McDonald’s
  • Pizza Hut
  • Publix
  • Starbucks
  • UPS
  • Wells Fargo
  • Walmart

One thing to note with employer tuition assistance is that this form of financial aid is only tax-free up to a $5,250 cap. Any financial assistance past that amount needs to be declared on your child’s federal income taxes.

When your children are looking for a job before or during college, encourage them to explore employer tuition reimbursement options. Some employees will only cover tuition for degrees that directly connect to the job itself (e.g. Business Administration for a management-focused job).

7. Start a Roth IRA

While Individual Retirement Accounts (IRAs) are, as the name would suggest, primarily used for folks planning on retirement, they can also be used for college savings. In fact, while withdrawing from an IRA before you’ve reached age 59½ normally incurs a 10% penalty, you don’t have to pay tax if the withdrawal is for a child or grandchild’s higher education.

You do still need to pay income tax on a withdrawal from a traditional IRA. However, you don’t have to pay this tax for a Roth IRA withdrawal. Either way, IRA distributions can count as income for purposes of financial aid, so keep that in mind if your child needs to apply for financial aid.

Another potential concern is that withdrawing from an IRA will deplete the amount of money you have saved for your retirement. One way to avoid this is to set up a custodial IRA in your minor child’s name. The limiting factor is that you can’t contribute more to this IRA than your kid earns in a year.

For example, if your child earns $1,000 working a summer job, you can let them keep that money for themselves and contribute up to $1,000 of your own money into the tax-advantaged account. By the time college rolls around, there should be a substantial amount of tax-free savings to withdraw for your child!


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