![]() Look for one that allows you to choose the funds you invest in through the account. But be careful-some 529 plans are no good. If you want to save more than $2,000 a year for your children’s college education or if you don’t meet the income limits for an ESA, then a 529 Plan could be a better option. The amount must be used by the beneficiary by age 30.You must be within the income limit to qualify.Contributions are limited to $2,000 per year.Higher rate of return than a regular savings account.It can be used for K-12 private school tuition, vocational school or things like textbooks, school supplies or tutoring If your child doesn’t end up needing it, you can transfer the money to a sibling for their school. ![]() An ESA isn’t just for college tuition either. We like the ESA account because it’s likely a much higher rate of return than you’d get in a regular savings account-and you won’t have to pay taxes when you withdraw the money to pay for education expenses. Congratulations, you more than tripled your investment, and now Junior doesn’t have to worry about paying for tuition! But at the average stock rate of 12%, that $36,000 would grow to around $126,000 by the time the child starts school. It’s hard to say exactly what the rate of growth is with an ESA because it varies based on the investments in the account. Plus, it grows tax-free! If you put away $2,000 a year starting when your child is born, by the time they turn 18, you would have invested $36,000. It allows you to invest up to $2,000 (after tax) per year, per child. Once you have that number, Dave recommends saving for college using these three tax-favored plans: Education Savings Account (ESA) or Education IRAĪn ESA works a lot like a Roth IRA, except that it’s for education expenses. Baby Step 4: Invest 15% of your household income in retirement (for instance, through your employer-sponsored retirement plan, like a 401(k) or a Roth IRA).įirst, you need to figure out how much you need to save for college.Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund.Baby Step 2: Pay off all debt (except the house) using the debt snowball.Baby Step 1: Save $1,000 for your starter emergency fund.That means there are four other steps you need to take before you even think about Junior’s college education: ![]() If you’re following the Baby Steps, you know that saving for college is Baby Step 5. Bottom line, you need to take care of your future first, then you can bless your kids. There are other ways to pay for college too, like using grants and scholarships. You need to pay off debt, have an emergency fund, and start saving for retirement before you jump into saving for college. Starting a college fund is a great goal, but it’s not the only goal. OUT NOW! Watch Borrowed Future on Amazon Prime Video, AppleTV and Google Play. ![]()
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