Why You Cannot Afford to Wait to Save for Your Child’s Future


It is obvious that those parents who are reading this are certainly quite concerned about their child’s future. Perhaps, you might have even started saving for their education, but an important thing is to have a proper plan for saving.

Every parent encourages his or her child to study hard so that he/she can get admission in a good college in future. This will help them stand out in today’s world of competition, which runs on the principle of ‘survival of the fittest’.








Save for Your Child’s Future

Why can you not afford to wait?

The cost of education is rising with each passing day. The cost of higher education has experienced a skyrocketing rise of 538% since 1985.  Therefore, it is high time for parents to start saving for their kids’ higher education, or else they may not be able to fulfill their children’s dreams and aspirations in future.

Looking at these dire conditions, I have summarized the best child plans that can help you to save money so as to give your child a glorifying future!

Prepaid Tuition Plans

This approach is quite a far-sighted one, as this allows the parents to purchase the tuition plan credit at an estimated price in advance. They can purchase this from an in-state public college; however, there are others that also cover out-of-state schools. In short, it allows the parents to pre-purchase the tuition (which will certainly rise in the coming future) in the current price. This further relieves you from the inflation or soaring college fees.

One of the major drawbacks of this plan is that your child does not get to opt for his choice of school. However, you can get your money back, but then you will be affected by inflation.

Custodial Accounts

Parents who want to reserve cash as well as assets for their child’s higher education, then you can opt for custodial accounts. Two most popular are Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA). As per IRS, the taxes are not levied on the first $1,000 deposited. Taxes get levied on the next $1,000 but on the rate of child’s income tax, and the remaining amount is taxes as per tax rate that is applicable on parent’s income.

Apart from the benefits, there is the negative side of these accounts. This is that if you do have much control over your child and he may consume all the funds. The reason behind this is that there are no restrictions on the way you consume your funds as long all they need is the funds have to be directly used for your child. This is because when your child reaches the age of 18–21, they are allowed to use the money how they like.

Prefer IRA to Pay for Education

In order to save taxes, you can take help Internal Revenue Service (IRS) as it allows you to withdraw IRA funds without taxes and any penalty for expenses made on education. Above all, you can make use of these funds for your retirement if in case your child does not wish to go to college.

Your Savings Account is not sufficient

Apparently savings account seems to be the best idea to open for your child. But, it may disqualify your child from getting a scholarship for his/her higher studies. Financial aid is dependent on the assets that the policyholder owns from a year before he or she applies for the aid. Savings account of a child is the first thing they will look at the time of finding out the aid given to your child. Further, the financial aid providers will look into the funds of the parent’s and the children in their custodial accounts. This infers that your steadfastness as a parent will end up in losing the financial aid provided to you. So, do not put all your money into the savings account. Keep a portion of your money in the savings account and invest the remaining amount in the capital market, for a higher growth of your assets.

Teach a thing or two about savings to your Child

One can also teach their teenager child to save money for their higher studies if they wish to take a job. This can be a good opportunity to learn about savings. They can learn to save for themselves and this can be done by dividing the income into three parts:  expenses, requirements for short-run, and the requirement for the long-run (higher education).

This will help you to cut some slack for yourself, and can also be a learning curve for your child to learn the importance and techniques of saving.

529 Savings Plans

Also called Qualified Tuition Program, allows parents to save for their child’s college education and also get a tax rebate on the same. 529 Saving plans comprise of different plans and each of them has distinct annual fees is as well as operating costs. Thus, you cannot choose any one of them; rather you need to thoroughly compare them to strike the best deal.

The working of this plan is like that of 401K or IRA, therefore all the contributions are not tax-free; however, your earnings are tax-free. Parents are allowed to contribute to this tax-free account till the age of your child is 18. The money from the account must be used by the time they turn 30.

One of the most important features of this plan is that the policyholder is allowed to change the beneficiary if in case if he or she does not wish to use if for their child’s education.

Coverdell ESA

Coverdell ESA is the acronym for Coverdell Education Savings Account. It is a custodial account which one can use to cover educational expenses of any kind, at any point in time. Therefore, this gives the policyholder to leverage it anytime and do not have to wait for their child to take an admission in a college. Though the functioning of this plan is similar to that of 529 savings plan, the amounts you need to contribute are quite lower.

When it comes to contributions to a 529 account you are allowed for contributions of $200,000–$400,000 for a lifetime, whereas for a Coverdell ESA contribution of $2,000 is allowed per year. Moreover, you need to utilise the money accumulated till they are 30.

Over to you!

Savings is the only way that can secure your child’s future financially.  Even if your salary is not adequate to take care of all the financial needs of your family, the amount you have accumulated account over the years in your savings will prove to be quite useful for you. The importance of saving will be evident at the time of your child’s college admission as well.  So, if you are a concerned parent, do not wait for the imaginary right time to come, but start saving and investing right now!




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