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What You Need to Know About Planning for Your Child's College Fund

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If you’re a parent of a very young child, college tuition is probably the farthest thing from your mind right now. Most people are apathetic towards college savings until their kids are in their older teens. But, with the rising cost of college tuition, this is definitely not a wise approach.

Starting a college fund for your kids while they’re still very young is the best option you have to circumvent these costs.

Why Start Saving for College Early?

Many parents dread starting a college fund and find it stressful. However, there is an upside to promptly starting a college fund that most parents don’t recognize.

Picture this: your kids are graduating high school. All the other parents are worried about how to come up with the cash for college. But you can relax because you already have your kid’s college fund sorted.

A recent analysis shows that 32% of parents felt they did not start saving early enough for college, and almost 55% of parents are worried about continuous rising tuition fees. If you still need convincing, here are some other smart reasons why you should start saving for your child’s college fund early.

Gives Your Money Time to Grow

College tuition is exorbitant and increases annually. Many parents struggle to save up money when their child is almost done with high school.

With early savings, you have enough time to build up the money in the account. You can set a fixed monthly deposit, compound additional funds occasionally, and monitor your progress without much stress.

Need Time to Plan

No one likes to be rushed, and the same goes for savings. It would help if you generated a saving plan that determines how much you'll save annually, where you'll be saving, and why you're saving. Starting the college fund early will give you a good timeframe to develop and stick to this plan.

How Much Do I Need to Save?

Your savings goal will depend on the age bracket of your kids, your annual income, and the average college tuition fee, among other factors.

Some parents make the mistake of trying to save everything at once or in a short timeframe. This will only make it overwhelming for you. Other parents might end up saving an inadequate amount and only provide a small percentage of their child's college fund.

The best option is to spread the total cost of the college fund over time. Here are some key factors that will influence the total amount you should save.

Age of Child

If your child is a toddler, you can begin by saving in bits and increasing your deposits as the child grows. If your child is a bit older, like a teen, start out with big deposits, save regularly, and increase the deposits as time elapses.

College Planning Calculator

Factor the full cost of college (tuition, housing, books, etc), alongside possible scholarships and grants, into your savings plan. Also, consider the timeframe you have prior to when your child starts college and whether or not you're open to taking loans. Once you’ve calculated all this, you will have an estimated amount of what you need to save.

College Savings Options

If you're a newbie to saving for children, you may be unsure how to start a college savings fund. Luckily, there are multiple college saving options you can consider. The best advice is to save early and save often. Here are some excellent college saving options.

529 Plans

This tax-advantaged investment account is designed to motivate people to save up for future educational expenses.

Parents opt for this option because it is designed with the student in mind and has added benefits to make saving easier for them. These benefits include account flexibility, low costs, tax benefits, and low contribution rates.

Nearly every state in the US offers one or more 529 plans. You can start a 529 plan at a bank or a credit union that offers them.

Coverdell ESA

This is a US custodial account set up to pay the educational expenses of the account's owner. Like a 529 plan, it targets students and comes with benefits, such as tax-free earnings and withdrawals.

However, these benefits only apply when the money in the account is used for educational expenses.

Mutual Funds

This involves investing your money in various securities, like bonds and stocks. You can earn money from mutual funds and add this to your savings. Mutual funds offer a great deal of control and flexibility as there are multiple investment options available with almost 10,000 mutual funds. And there are no restrictions or penalties for selling shares or using the money for something other than education expenses.

The disadvantage to 529 plans is the annual income tax attached to them.


There are several college saving options to consider when planning your child's college fund, and it can seem overwhelming as a first-timer. No worries, our team at the Power Financial Credit Union is here to help you every step of the way.

We offer quality college-saving options, including 529 plans and Coverdell accounts, as well as student loans to help kick you off. Contact us today to get started!