Given current projections, you can expect the cost of a four-year education to average between $35,360 at an in-state public university to $74,380 at a private college for this year’s high school juniors; and between $74,430 and $156,570 once today’s kindergarteners graduate high school. With such daunting figures, it is easy to understand why it’s never too early to start saving for your child’s college education.
Here are some other reasons why it’s wise to start saving now:
- Regular investments over time remove the drama of up-and-down markets by taking advantage of a strategy called “dollar cost averaging.” This simply means that your investments will coincide with both higher prices and lower, allowing the overall cost of funds purchased to even out.
- One of the most common college savings vehicles is the 529 state-sponsored plan. The largest benefit to investing in the HI529 is that you won’t pay federal or Hawaii state taxes on the investment growth and withdrawals, provided funds are only withdrawn for qualified higher education or trade school expenses. Better to collect your money there than in other taxable investments.
- Contributions can be as small as $15 per month. However, the more you can contribute, the better. With a $500 initial investment and $325 monthly additions, given a modest growth of 5.5% per year, a kindergartener today would have enough for the first year of college upon high school graduation.
- Instead of toys, your child could accumulate education funds. Relatives can make gifts to college savings plans of up to $14,000 per year, without having to pay a gift tax.
- Many plans offer automatic withdrawals from your bank account, which can help prevent you from spending it before it gets invested. Another way to maximize your contributions without altering your lifestyle is to increase your investment with every pay raise. Do this now, and over the years you can build up a college savings without a noticeable budget hardship.
Even if you believe you’re raising an academic genius, or star athlete, don’t waste any time before starting their college fund.
