To make this work you will need to implement a savings plan. Based upon anticipated college costs, you should establish an annual goal divided by twelve. This gives you your monthly savings target. Whenever possible, you should strive to make lump sum contributions. For example, if you receive a tax refund, this would be a good opportunity to contribute a lump sum payment.
Sample College Savings Plan:
|
Monthly Savings Goal*
|
|
Type of school
|
Public
|
Private
|
Ivy
|
|
Current annual costs
|
$14,300
|
$33,300
|
$43,700
|
|
Child's Age
|
Newborn
|
$386
|
$ 898
|
$1,179
|
|
Four
|
$435
|
$ 1,013
|
$1,329
|
|
Eight
|
$517
|
$1,204
|
$1,579
|
|
Twelve
|
$675
|
$1,572
|
$2,064
|
|
Sixteen
|
$1,094
|
$2,548
|
$3,344
|
Here are some other tips:
- Work to Minimize Taxes: For example, your child can receive up to $850 in investment income each year without paying taxes on it by gifting income-generating assets. Be sure to speak with your financial planner or tax advisor before making these tax-related decisions.
- Maintain Control: It is recommended that if you have grandparents or friends funding a 529 plan that you have them make you controller of the account. Or a better option would be have them make "gift" contributions to a 529 plan you already control. This helps to maintain proper planning of your child's education.
- Tax-Free Investing: If your child attends a private or religious elementary or secondary school, you can contribute up to $2,000 per year to Coverdell Education Savings Accounts (ESA). After high school that money can be used tax free for college.
- Seek Professional Advice: It is highly suggested that you speak with a knowledgeable financial planning or tax professional to discuss your child's education. Navigating through tax laws can be a difficult process without the right assistance.