3 Ways to Maximize the Return on Your Kid’s College Fund

Getting through college is an expensive task, and it's important that you start early in order to help fund your child's future education. Many people think that putting money in a savings account is enough, but whilst this helps, there are better ways to maximize your return:

Open a Roth IRA

If you haven't come across them yet, Roth IRA's are basically retirement savings accounts that come with a wide range of tax advantages. The idea is that you can put in as much after-tax money as you want up to a limit of $5,500 per year that is then used as investments that you can take tax-free after retiring.

However, Roth IRAs can also be used to help fund your child's college education. As long as you have kept the money in the IRA for five years, you are allowed to withdraw as much of the funds as you want for education expenses. This means that you can withdraw portions of the money to help your child even if you haven't reached retirement age by the time they head to college.

Speak to Colleges About Pre-paid Plans

Many states across the country offer pre-paid tuition plans to help keen parents fund their child's future education. The idea is that you small payments for a number of years in advance of your child going to college. By the time they enroll, you will have made a significant dent in their tuition burden.

The best thing about pre-paid tuition plans is that they effectively lock in tuition fees at current rates. For example, if tuition fees are currently $30,000 each yer and you pay $15,000, you are guaranteed 50% of your child's tuition fees regardless of how much they increase over time. With education and living costs only moving in one direction, making payments to your child's education now can be a very savvy investment.

Combine Different Plans Together to Maximize Return

Many parents make the mistake of thinking that they only need one savings account or plan in order to fund their child's future education. But whilst having one account is better than none, you miss out on the benefits of combining various different plans together to really maximize your fund.

For example, many savings accounts have deposit limits or limits beyond which the money earns no interest. Rather than just capping your savings at this limit, you can look to juggle a few different funds to leverage your situation. If you have an annual gift tax exclusion, you can add this to a separate tax-free account and use your additional savings as a supplement.  

To learn more about the process, contact college savings planning services.