Saving for your child’s schooling doesn’t have to be difficult with the right funding options.

Given the ever-rising costs of tuition, an increasing number of parents are concerned with funding. However, those that fail to plan ahead may not have enough to pay for their child’s education which can cause disappointment, frustration, and worry.

To prevent this from happening to you, there are a number of funding options available to help achieve your goals. Some of the most popular options include prepaid tuition accounts, education IRA’s, trusts, and 529 plans which are all designed to help parents save.

Prepaid Tuition Accounts

A prepaid tuition program is a popular funding option for parents because of its ability to lock in tuition rates at the current price. This prevents parents from having to pay more in the future if rates increase over time. Instead, they will be able to save on the cost of inflation which can be a significant amount of money. Further, the amount that’s invested in this type of account is guaranteed to grow at the same rate of college tuition, regardless of how high it becomes

Parents that choose to invest in a prepaid tuition account will also be able to make partial payments. In turn, providing families with a smart long-term option to offset the cost of inflation and its impact on their child’s success.

Education IRAs

Another option that parents can choose from is education IRA’s (also known as the Coverdell Education Savings Accounts). This type of account allows for annual contributions that will grow free of federal taxes. Any withdrawals from this account with also are tax-free so long as certain requirements are met for how the money is being used.

It is important to note that parents will not be able to contribute to his plan once their child (or beneficiary) turns 18 years old. This means that parents will need to ensure any money that is placed into the account is invested prior to their 18th birthday or they are at risk missing out on the tax break.

Finally, the account will need to be liquidated by the time the child turns 30, otherwise, parents will be subjected to taxes and penalties in order to clear the funds.

Trusts

Parents looking to fund their child’s schooling can also invest in an educational trust. Unlike other types of accounts or investments, trust can only be used to specifically fund education. Meaning, once the guarantor names a trustee and beneficiary they will have to state exactly how the money is to be used. Once the beneficiary is ready to use the finds, they will then need to provide necessary documents or evidence to prove they have used it in the correct manner.

However, it is important to note that there may be money left over in the trust if the beneficiary decides not to go to school, or if the tuition is less than the amount that is being held. Given this possibility, it’s best for parents to speak with a financial planner to advise how the money should be allocated to clearly state the terms of its use.

529 Plans

The final common savings plan for parents is a 529 college savings plan. Unlike standard types of savings accounts, the 529 plan is specifically designed to save money for college expenses.

The plan is designed to encourage tax-free savings that are specifically geared towards education. Choosing this plan also offers a number of tax benefits for all (or part) of the contributions that are made through federal deductions or credits.

However, beneficiaries will need to ensure that any money pulled from the account is used in accordance with the regulations. This is due to the fact that beneficiaries are able to use this money for more than simply tuition, instead of being able to qualify for room and board, transportation and other schooling fees.

Saving for college can seem like a daunting task without the correct preparation. However, parents that want to invest in their child’s future can turn to a number of savings accounts offered by the government. If you’re interested in saving for your child’s education but are unsure where to begin, consider speaking with a member of our staff who can provide a personalized recommendation.

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