Invest in Education | 529 Plan

Lidia Staron, author at OpenLoans
Lidia Staron   OpenLoans Marketing Manager
Personal Finance
I enjoy navigating people through important financial decisions.

Putting money aside for education or your child's education can seem like something that you don't have to worry about until a long time in the future. In reality, it's never too early to start a child education plan and put money aside for when the time comes to go to college.

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There are specific ways to protect future investments and do things properly for an education investment plan. You might be saving for a decade or longer, and there are ways to do this to make the most interest and try to build up as much money as you can.

Don't worry; there are plenty of other ways in which you can fund education when the time comes. Personal student loans are standard, and it is only essential to save around 30% to 40% of what your child will require for their studies, so you don't have to ensure you have all the necessary money saved up. Student loans are still prevalent.

Why Do People Invest in the Future?

Why do people start so early? It's essential to understand why people invest in something that may not happen for decades. Future investments are vital to ensure that you have enough money to last the course when the education bills have to be paid.

The average cost of attending an in-state school for a single year comes to over $20,000. This means that you probably need as much time as possible to save up. For the sake of your financial wellness, it is a good idea only to have to put aside a small sum each month rather than wait until a few years before your child starts college and have to save a lot more.

Why do people invest early? This way, they can take advantage of interest over a long-term strategy and pay smaller monthly amounts if required.

Education Investment Plan

An education investment plan is a way to use investment accounts to maximize the money you will be earning. This means that you can take out a charge linked to the stock markets, such as an IRA. This can allow you to get returns that are much higher than what a bank would ordinarily offer on a savings account, but this depends on the country's economic state and which IRA account you choose.

There is always a risk when you invest in education, but the potential to make extra money through an education investment plan, primarily through compound interest, is very tempting. You can certainly make your money grow if you do things correctly.

Education Saving Plan

Saving isn't the only option to invest in education, as you can even find personal loans for fair credit when the time comes. You don't have to raise all the money in advance.

The risk of investment might be too much for some people, which means that it is a popular option to get an education saving plan to put your money to one side. You will experience some benefits and hopefully gain some interest in doing so, but the potential for returns isn't huge. Luckily, there are some specific education saving plans that you may be able to take advantage of.

Of course, you can just opt for any standard savings account, but this probably isn't a good idea when you consider the fact that there are many different saving account options made with students in mind, and these can have their benefits.

Types of education savings plans include:

  • Coverdell Education Savings Accounts (ESA) also have tax benefits but can be used for pre-college educational costs, too.
  • Roth IRAs are often used for retirement, but if you are 60+ when you withdraw, they can be an excellent way to save money and receive higher interest than other savings accounts.
  • Pay ahead of time. Some establishments will gradually let you pay for education and pay early to receive a discount via a prepayment plan.
  • Standard savings accounts. Your bank can provide you with a savings account that allows you to access the money whenever you need to. That way, the money is not tied up for years.

How to Choose an Education Saving Account?

With any financial decision, whether you are choosing personal loans for bad credit, looking to invest in education, or taking out an IRA savings account, you should make a point of doing some research first. Consider your own needs, the risk level you are comfortable with, and what you require before taking out a savings account.

A child education plan should only be decided upon once you have considered the following:

  • Is prepayment more appropriate? If you know that your child will be educated in the state in which you live, then there is every chance you will be able to pre-prepay their tuition. This is a way to start paying early to minimize debts when the time comes for your child to go to college.
  • How much risk are you willing to take? Suppose you are happy to take more risks with the money. In that case, an IRA or other investment-related account can be a way to maximize your savings and take advantage of interest, or even compound interest. If you start saving when your child is born, that's 18 years to accrue interest if you invest wisely.
  • Consider how much you need to save. This can be tough to estimate. Research how much the average cost of education is in the state and give you a savings benchmark. The more you can save, the better.

529 Plan

A 529 plan is designed to give tax benefits and allow you to grow your money while saving for education. The earnings in a 529 plan are not taxed, even when you withdraw them. Five hundred twenty-nine plans are a great way to put money aside, with the only real drawback being the fact that you might not be entitled to as many benefits and state aid when it is time to pay for college.

The tax breaks on a 529 mean that the vast majority of people who are looking to invest in education for the future consider taking advantage of the plan. You can quickly work out how much you need to save by considering the number of years you have to keep the money and how much the educational establishment you have in mind costs. Remember that you don't have to save all of the capital. You might be entitled to other support or get personal loans to help pay for the education expenses. Living expenses should be considered, too.

Future Investments You Should Make ASAP

If you are considering how you will pay for education in the future, there are some investments you should try to make as soon as possible. These may be in the form of minimizing debts, or they might be ways to put your money to one side for the future.

Why do people invest early? What are the top tips for growing your money for use in education?

  • Take advantage of tax benefits. A 529 may mean that your saving is tax-free.
  • Consider an IRA or an investment-based account. Investing in this way will allow you to maximize the interest you can make potentially. It enables compound interest. As you (hopefully) build up profits every year, you will continue to make more interest on this money.
  • Start early in case your situation changes. You may not always be earning the same level of income. If you can invest early, while you are bringing money in, you may be protected if anything changes.

Everyone's situation is slightly different, but it is always a good idea to put money aside for the future. You don't have to save the whole amount required for a college education, but having some of the funds ready will help to prevent any financial hardship and ensure that you can focus on your education, or your child's education, rather than how you are going to pay for it. 

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