While higher education may still feel far off for your little one, getting a head start on setting up a college savings account for your child is one of the best savings strategies you can implement today. 

Student debt is an ugly but very real thing, and the total amount has reached a staggering, all-time high of $1.41 trillion this year (2019). While tuition costs aren’t getting any cheaper, obtaining a college degree doesn’t have to require a big financial sacrifice. 

Instead of turning to loans and incurring mountains of debt or hoping your child earns a scholarship that will pay for co, it’s important to get proactive and start a child college savings plan today. A 529 account allows family earnings to grow and be withdrawn tax-free, which is a huge incentive to save for college. 

Navigating the process can be a little confusing, especially for new parents who haven’t had to save for their child’s education before. In this article, we’ll take a look at the benefits of early savings, how to find a 529 plan, gift contributions, and savings tips to help get you started.

 

When Should You Begin Saving for College? 

 

While saving for college may not seem like a top priority for new parents, creating a child college fund account is a smart investment. Just remember, the sooner you get started on creating a bank account for your child’s college education, the more time your account earnings has to grow tax-free. 

Families who start as early as when their child is born will accrue a much greater amount of their savings from what’s earned on investments. For example, if you take a family who starts saving for their child’s college as soon as their baby is born, roughly a third of the savings will come from earnings alone. For parents who wait until their child is already in high school to create a child college savings plan, less than 10% of the money in the account will come from earnings. This means parents will have to save 6 times as much each month just to reach the same college savings goal, which is a huge difference.

At this point, you may be thinking “what about saving for retirement?” Your retirement savings account doesn’t need to sit on the backburner just because you’re adding a college savings account into the mix. You can save for both. Look for ways in which you can maximize the value of your retirement plan. For example, if you’re employer matches a 401k, make sure you are contributing the max of their matching contribution.

For those who are either self-employed or who don’t have an employer with a 401k match, think about opening up another tax-advantaged account such as a Roth IRA. If you can’t afford to make monthly contributions, just remember that any amount at any time is better than nothing.

 

Find a 529 College Savings Plan 

 

Now that you’re on board with getting started on saving for your child’s future, the next step is to find a 529 college savings plan that resonates with your financial situation and goals.

The first thing to understand is that 529 plans are state-sponsored and you’re free to invest in a 529 account from any of the states offering it. While you aren’t required to select your own state’s 529 plan, it’s a good idea to consider it as there may be additional benefits, such as state tax advantages.

The greatest advantage of investing in a college savings account for your child is the tax benefits. Most states will allow you to deduct contributions on your income tax return up to that particular state’s limit. Your 529 account earnings will grow tax-deferred, meaning you get to hold off on paying federal and state taxes. Withdrawals are also tax-free as long as the money is used for qualified education expenses, such as tuition, books, room and board, and other school-related costs. 

Another perk, unlike other college savings plans, is that a 529 account doesn’t have any income restrictions or caps on annual contributions. And if your state doesn’t offer a great 529 account, you can see what other states are offering.

Opening a 529 account is a great way to start saving for your child, grandchild, or other family member. You can sit back and watch your money grow by opening a 529 college savings account with U-Nest, an easy-to-use mobile app designed for establishing tax-free college savings. All you need is a $25 per month minimum contribution and less than five minutes of time to open an account and begin enjoying tax benefits for your child.

U-Nest was built to provide the best possible experience for parents and allow them to save for their kids’ bright future with ease and peace of mind.

 

529 Plan Giftings (grandparents, family, friends can contribute)  

 

What many parents don’t realize about starting a college fund for their child is that others can contribute, such as grandparents, family, and friends. Given the rising cost of tuition, you can opt to have loved ones contribute a 529 gift at holidays or birthdays. Unlike clothing and toys, a gift to a 529 college savings account is something your child won’t grow out of and can have a long-lasting impact on their future.

Remember, there is no minimum when making a 529 plan gifting and even small contributions will add up. Some 529 accounts make gifting easy by allowing parents to create and share a link to their child’s gift page, which you can track online.

 

Begin Saving Early

 

If you really want to be proactive on saving for your child’s future, you can get started even sooner to reap the most tax-advantaged benefits of establishing a bank account for child education—when they’re just a baby or even before they’re born.

When it comes to saving for an unborn child, you can certainly create a 529 college savings account. The only caveat is that the child cannot yet be the beneficiary of the account since the IRS mandates that all 529 plans be created only for a living beneficiary with a social security number. With that said, 529 plans are flexible and allow you to easily change the beneficiary.

So if you open and get started contributing to a 529 account for yourself, you can transfer it to your child once they’re born. Just make sure you’re aware of the tax consequences of changing a beneficiary.

For example, the IRS allows you to change the beneficiary without incurring any federal income tax penalties as long as the change is made to another member of the family. 

 

College Savings for Babies 

Before jumping into creating a college savings for your baby, try to get an idea first on what your baby’s education might cost in the future. There are online college cost calculator tools that help predict what college will cost on the year your child attends based on the current 5% annual rate of inflation on tuition costs.

So if the annual college cost today is $50,000, with a 5% college cost inflation rate, 4 expected years of attendance, 35% of costs you plan to cover from savings, and 18 years until college, you’ll need to save roughly $42,116 for freshman year alone and $181,525 total. While these numbers may be daunting, just remember that there are numerous resources available to help you reach your goal, such as scholarships, grants, and other types of financial aid.

You can also choose a 529 prepaid tuition plan which essentially allows parents to lock-in the current rates of tuition. States which offer this 529 plan type guarantee that the money will increase as school costs inflate, meaning a year of tuition paid today will still be worth a year of tuition the year your child goes to college.

This differs from a traditional 529 college savings plan where the money is invested in a portfolio, which can either rise or fall based on its market performance.

 

Child’s Education Savings Account Tips 

 

If you’re reading this article, it means that you’re already taking the right step when it comes to saving for your child’s future. While starting early is the best thing you can do for your child’s education savings account, there are a few ways you can reach your goal, and that’s by prioritizing your finances, creating savings goals, and by automating your savings. 

Let’s dive in to each of these savings account tips so you can move forward with confidence.

 

Prioritize your finances

It’s always an exciting endeavor when we create financial goals for ourselves, whether it’s dreaming of a wealthy retirement or our child graduating from college.

While prioritizing your finances doesn’t have to be a lofty goal, it’s not an easy one either. The key is to know what you want. After all, you can’t take any meaningful steps until you create goals for yourself. This means thinking about both your short-term and long-term goals and allowing them to co-exist. 

Creating a child college savings plan doesn’t mean you have to forfeit your retirement or other investment accounts. It means establishing smart, proactive goals now so that you can have it all. Remember, your contributions can be big or small, but the important thing is that you’re making them. Here are some creative ways to help boost your college savings.

While investing is always a smart option, it’s equally important to prioritize paying off any credit card debt you have, especially those with the highest interest rates. Credit card debt is one of the top reasons why people put off investing and it’s because of those high interest rates, which may be higher than the return on investments. 

Regardless, a 529 plan is an important investment you’re making in your child’s future finances, so while you work hard to pay down your debt, start making small contributions to the 529 plan. Additionally, having a 529 account means friends and family can make gift contributions. Every dollar makes a difference in the long run.

 

Create savings goals

As mentioned earlier, it helps to think about what your child’s education costs may be in the future and whether it’s worth it or not to select a prepaid tuition to lock in current rates for tuition. Instead of contributing blindly to a college savings account, instead, have a rough monetary goal in mind so that you can then consider the resources around you to aid you in achieving that goal.

Once you have an idea of what your college savings goal looks like, you can start making comfortable contributions every month that will help get you there. This creates a savings timeline to reach your goal.

Since the future always feels far away, it can help to set monthly or even yearly goals. Just determine how much you need each month or year to reach the end goal. Hitting these smaller goals at regular intervals will help keep you going with continuous contributions for your child’s college savings account.

Another way to set and reach your savings goals is by finding extra money in your budget each month. Cutting back on other expenses, such as shopping or eating out, can help put a few extra dollars in your pocket that can be put towards your 529 account.

 

Automate your savings 

Automating your savings is one of the easiest ways to save even more money and reach your savings goals, but what does it mean to automate your savings, exactly? This is a type of personal savings system where you, the contributor, will make automatic and fixed amount deposits at specified time periods into an account.

So every time you receive a paycheck, you can set a designated amount to be automatically transferred to your 529 account.

Setting money aside each month for every obligation we have is tough, whether it’s a 529 account, retirement account, or even your mortgage payment. Automating your savings is not only convenient but can also help with budgeting and managing your spending habits. There’s no excuse not to save for your child’s future and it may require a little adjustment to your family’s finances, but it’s worth it. 

Automating your savings also helps take the emotion out of investing in a portfolio that can increase or decrease depending on the market performance. Experiencing losses on an investment shouldn’t keep you from continuing to contribute.

 

What to Do When You Are Absolutely Short on Finances? 

 

Whether you lost your job, had an emergency, or experienced some other unexpected expense setting you back financially, the first thing is to relax. We’ve all been short on cash at some point in our lives, but that doesn’t mean you have to put a complete halt on your contributions.

Additionally, 529 and similar plans that help save for higher education aren’t only for high-income earners. In fact, lower-income families can benefit from a 529 plan by being protected from creditors, which some states offer. 

All-in-all, the reality is you can contribute whatever amount you like whenever you want, even if you’re experiencing financial hardship. The very act of participating in a 529 plan at all, no matter how big or small the contribution amount, comes with the ultimate benefit of building an expectation for your child to achieve higher education. It creates a mindset for your child that they have savings for their future. Studies show that a child with even a minimal educational savings account is more likely to attend college than a child without a savings account.

 

Final Thoughts

 

Enrolling in a 529 college savings account may feel like you’re creating a new expense for yourself, but just remember that it’s an investment in your child’s future. Nothing is slowing down college tuition costs, and while there are scholarships, grants, and other forms of financial aid that can help, you want to make sure you’re getting ahead by making contributions when you can and reaping the tax benefits they bring.

A 529 plan lets anyone contribute, not just the parents. Nearly every state offers a 529 plan that comes with a variety of tax advantages, such as tax-free withdrawals, tax deferrals, and state income tax deductions. 

Open an account by downloading the U-Nest 529 Plan app which is simple and efficient to use. Get started saving in less than five minutes and prepare to take the next step in achieving the financial goals you’ve set for your child.

 

Blogs and articles contain the current, good faith opinions of the authors but not necessarily those of UNest. The documents are meant for educational purposes only and should not be considered as investment advice or a recommendation of any type.  The documents may contain forward-looking statements.

Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.