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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
How much and how soon should you start saving for your children's college education? A Rough College Savings Guideline By Britt Erica Tunick One of the biggest financial concerns of most parents is funding college for their children. And if you’re a parent, whether your child is in high school or has yet to even begin preschool, odds are the subject is one you’ve thought about extensively. But how much do you need to save now to ensure that your child’s education will be funded by the time they are ready for college? Though the specific amount of each child’s higher education costs will vary based on factors such as their age and the expected cost of schooling at the time they will enter college there are some general guidelines most financial advisors are giving their clients these days. If you hope to send your child to a private four year university, followed by another two years of graduate school, many financial advisors suggest that you start investing roughly $2,000 per month ($24,000 per year) from the time your child is born until they are 18 years old. If you think your child is more likely to attend a public university the overall cost of their education will be significantly lower. One way to determine likely costs is to use The College Board’s college saving calculator, available at: https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/college-savings-calculator, to determine the likely costs based on historical education cost increases coupled with expected investment earnings of specific institutions at the time your child is expected to enter college. Such investing doesn’t need to be made entirely through a 529 account, but many advisors suggest that at least a portion of college savings be made through these vehicles since any earnings in these accounts accumulate tax-free and remain tax-free at the time the money is withdrawn as long as it is used for higher education costs. Other alternatives include certificates of deposit (not so attractive in the current interest rate environment) and US Treasury savings bonds, among others. |
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