When Should I Open My Kid’s College Fund?

It’s never too soon to begin preparing financially for the future by opening a college fund for kids. No matter how many children you have or how old they are, it’s also never too late. 

Here’s everything you need to know about college funds for children.

How Soon Should You Open a College Fund for Baby?

While the answer is generally “as soon as possible,” there are some limitations to that statement. When you open a college-specific savings account, such as a 529 plan, you need to assign a beneficiary.

Typically, this would be the child for whom the money will go to in the future. However, beneficiaries must have a Social Security number, meaning you can’t make your unborn child the beneficiary.

A potential workaround, however, is to make you or your spouse a beneficiary, then simply switch it to your child once he or she is born.

If your child is already born, you can open a college savings account at any time.

How Much Do You Need to Save for Your Child’s College Tuition?

It’s impossible to predict the price of college tuition by the time your child is ready to enroll, but the annual trend is an upward one, meaning it’s only going to get more expensive. That’s why if you live in one of  the eleven states that still offers a prepaid tuition plan, it might be worth exploring.

A prepaid tuition plan enables you to lock in tuition at current rates to use years down the road when you’re child is ready to attend college.

According to the College Board, enrollment in a bachelor’s degree program at a public college averaged a cost of $19,460 for the 2019-2020 school year. This includes tuition plus room and board.

For the same degree program at a private college, the average cost was $48,380. You can multiply each of those figures by four to get a baseline idea of how much college costs total today for each child.

  • Public: $77,840
  • Private: $193,520

Keep in mind these fees don’t include other costs like books, dorm room accessories, transportation or activity fees. These expenses can easily add a few thousand dollars more to your child’s college costs each year.

How Do You Calculate Monthly Savings for College Funds for Children?

To get an idea of a monthly savings breakdown for your child’s college savings plan, consider using an online calculator as a starting point. However, take these numbers with a grain of salt.

After all, they’re based on financing the full cost of tuition and they don’t include any support from federal financial aid programs, scholarships or student loans.

Many financial institutions offer these online savings calculators that give you personalized results. You’ll input information such as:

  • Current savings
  • Anticipated monthly contributions
  • Child’s age

You can play around with different contribution amounts to see how much of a dent you’ll put into each child’s tuition costs.

Is There Any Risk With College Savings Plans?

Remember that any type of savings plan you use that is based on investments comes with a degree of risk. Many 529 plans, for example, allow you to choose from mutual funds or ETF portfolios.

To try and hedge those risks, you might consider an age-based portfolio that changes your portfolio allocations based on your child’s current age.

While starting a college fund for kids early is a smart money move, it’s also inadvisable to simply “set it and forget it.”

Keep an eye on your savings account to track your progress and ensure you have as much as possible tucked away when it’s time to make that first tuition payment.

Disclaimer:  The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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