04 Jan When is the best time to start saving for college
There`s a lot of reasons why parents should start saving for their children`s college education. Some start right when the baby is born and some wait until their child enters high school. But when is the best time to start saving?
Some families start saving for their child college before the baby is even born. Some wait until they are in high school and some never even think about it.
Considering that time is savings greatest asset, parents should start saving for their children’s college education as soon as possible, but how soon it should be?
If a child’s parents start making regular equal monthly contributions to a college savings plan when their baby is born, about a third of the college savings goal will come from the earnings on the contributions. This assumes, an average annual return on investment of 4 percent to 5 percent.
When the parents wait until their child enters high school to start saving for college, they will have to contribute about six times as much per month than the parents who started saving when the baby was born. Six times more to achieve the same savings goal. Also, more than 90 percent of the college savings goals will come from the contributions, but less than 10 percent of the college savings goals will come from earnings.
The difference is the equivalent of getting 7 extra years of contributions, just for starting to save sooner.
For those starting to save before the baby is born: there are two different ways of doing this, since you are not gonna be able to open a college savings plan account in the name of an unborn child (or a baby who does not yet have a Social Security number), you can start saving the money in taxable accounts and transferring it to a college savings plan after the baby is born. The other involves starting a college savings plan in the parent’s name and changing the beneficiary to the child after the baby is born. A little more work to do but still a way to do it.
It is never too late or too soon to start saving for college. Always remember that every dollar saved is about a dollar less borrowed and every dollar borrowed will cost you about two dollars by the time the debt is repaid.
So, saving for college, even during the year before the student enrolls in college, will still save money.
Baby Boomers can help you start a savings program for a future that’s worry free! Call one of our specialists today and find out how we can help you.