How to start a college fund

How and When to Start a College Fund for Your Child

Many parents want to help their children attend college without accruing debt, and they know that it's best to start saving early to achieve this goal. They understand the benefit of a college education not only in terms of personal growth but also in earning potential, career opportunities and financial stability.

However, college expenses have risen considerably over the years, making it difficult for many families to afford without accruing some debt. Tuition and living costs can run over $60,000 for a year at a private college and more than $30,000 per year at a state university.

Fortunately, there are ways to start a college fund that can help you and your child cover tuition. Here's what you can do:

Choose the best college savings option for you

First, it's important to choose the investment vehicle that meets your needs. There are several fund types to choose from, all with their own rules and tax consequences. You can even have more than one account, depending on how your finances change over time.

Below are some college saving products to consider:

Start saving for your child’s college early

Ideally, the best time to start a college fund is when your child is born. With compound interest and regular investments made monthly or yearly, the funds have an opportunity to grow over a longer period of time, and you don’t need to put aside as much each month or year to reach your savings goal.

Your funding can be modest, and many parents find they can afford $25-$100 from each paycheck, automatically deposited into the college savings plan of their choice. If you get a raise or bonus, that money (or a portion) can also be allocated toward college savings.

Family members can contribute to a child's college savings by opening their own 529 plan accounts. They can also make contributions to an established 529 account under the child's parents' name, if the plan that the parents use accepts third-party contributions.

Some plans don't accept these contributions, in which case it's best to create a new account or gift the parents cash intended for deposit into the 529 plan. Regardless of how the plan is set up, it's important to maintain contribution levels that will ensure you can afford tuition and other costs. Such discipline can be particularly useful if you face additional financial obligations later.

Take time to understand the various rules when deciding which plan to open and how much to contribute. You can use this helpful college savings calculator to get realistic estimates for your finances.

No matter what plan you choose, starting a college savings fund for your child is a big investment. Let a Nationwide financial advisor help guide the process.

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