Your children will have to pay thousands of dollars a year in tuition fees alone.
Education is one of the most profitable investments. If you have some spare cash, you can consider saving it to pay for your child's college-related expenses, which, in addition to tuition fees, will include expenditures like room and board as well as study materials. There are a number of very good savings accounts you can choose from.
U.S. Savings Bonds
U.S. savings bonds are the safest type of saving plan you can have. Their only drawback is that the interest rates are relatively low. It is possible to redeem U.S. savings bonds tax-free if your children use the proceeds to pay for college.
529s
A 529 account is a state-sponsored savings account. The account is tax-free if you withdraw the money to pay qualified education expenses, such as tuition fees. Check the Morningstar website to compare and select the 529 offered in your state. When choosing the account, however, research the fund's performance, as well as the commissions and fees it charges. Bear in mind that 529s are typically invested in financial instruments such as stocks and so can move up and down with the stock market.
Prepaid Tuition Plans
Because college tuition fees have a tendency to rise, it may make sense to lock-in the level at today's tuition fees with prepaid tuition plans. A prepaid tuition plan is essentially a savings account offered by some colleges. You pay the college fees in installments long before your kids are old enough to enter college. If your child will not want to enter that particular college, you will always be able to withdraw the funds.
Custodial Accounts
A custodial account is a savings account created under the Uniform Gifts to Minors Act and Uniform Transfers to Minors Act. The account is opened in the child's name and the interest the account earns is taxed at the child's tax rate, which is typically low. These accounts are not as popular as they once were, however, as 529 savings accounts are similar in nature but are completely tax-free if used to pay college-related expenses.
Tags: tuition fees, college-related expenses, savings account, savings accounts, your child